This Stock Might Not Be Fun Anymore

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Cedar Fair (NYSE: FUN) has been a lot of fun for investors over the past three years, as the stock has appreciated approximately 270% over that time frame. But this hasn’t been quite as impressive as Six Flags (NYSE: SIX), which has gone up nearly 365% over the same period. However, past results do not guarantee future success, so let’s look ahead.

More fun for park visitors

Through June 23 (the early season for theme parks), Cedar Fair reported solid improvement over last year. These improvements include a 20% increase in season pass sales, a 1% increase in attendance, a 4% jump in guest spending, a 5% increase in out-of-park revenue, and an overall net revenue increase of 5%.

Cedar Fair cited strong marketing and execution for the strong performance. Management also reaffirmed its revenue guidance of $1.09 billion to $1.12 billion for the year. This would mark its fourth consecutive increase in annual revenue.

Consumer exposure

Cedar Fair owns and operates 11 amusement parks, four outdoor water parks, one indoor water park, and five hotels. These properties can be found in Ohio, Toronto, Minnesota, Pennsylvania, Michigan, Virginia, North Carolina, Missouri, and California. This geographic diversification is important because one local economy could be outperforming another. For instance, if real estate is performing well in California, then many consumers are likely to increase spending. And if the banking industry is suffering in Charlotte, then those close to Carowinds might be more reluctant to open their wallets.

In addition to a nice array of parks throughout the United States and Canada, Cedar Fair’s Cedar Point in Ohio was also rated, “Best Amusement Park in the World” by Amusement Today. There’s a pretty good chance you have never heard of Amusement Today unless you work in the industry, but Cedar Point is thought to be a top-rated amusement park by many sources.

Cedar Fair advantages

Cedar Fair might be a seasonal operation, but most of its employees are also seasonal and work for minimum wage without benefits. This keeps costs low.

According to Glassdoor.com, employees have rated their employer a 3.1 of 5. This isn’t a spectacular (about average), but considering the pay structure, it’s a great number. And those with more involved roles have rated CEO, Matthew Ouimet, very high, giving him a 94% approval rating.

Comparatively, Six Flags employees have rated their employer a 3.0 of 5. This is similar to Cedar Fair. However, CEO James Reid-Anderson has only received an approval rating of 67%, which is surprising considering the company’s turnaround.

Six Flags vs. peers

Six Flags and SeaWorld Entertainment (NYSE: SEAS) are both trading at around 40 times earnings, making both more expensive than Six Flags at 10 times earnings. Six Flags is also the most efficient company with a profit margin of 37%, compared to Cedar Fair and SeaWorld both owning profit margins just shy of 6%.

Furthermore, Cedar Fair and SeaWorld own debt-to-equity ratios of 73.61 and 4.40, respectively. Therefore, Cedar Fair’s generous dividend payments aren’t likely to be sustainable, it currently yields 5.90%. SeaWorld yields a more manageable 2.10%.

Six Flags owns a debt-to-equity ratio of 3.34, and it currently yields 5%. So it will also be difficult for Six Flags to maintain its dividends, especially if growth slows. And that just might happen.

Tragedy

As you might already know, a woman fell out of an unsecured rollercoaster ride, The Texas Giant, at Six Flags Over Texas. Not only was the protection bar faulty, but the rider apparently questioned the safety of the bar to a rollercoaster operator and she was told not to worry.

Some may say it was just an one accident out of millions of park visitors, but it’s still one too many. It should have an impact on the industry and especially Six Flags. Many people who considered visiting an amusement park will now stay away. Unfortunately, Cedar Fair may also be affected, though it did nothing wrong. 

SeaWorld should be the least affected by the tragedy, because it doesn’t rely heavily on thrill rides. Instead it relies on its namesake brand, water parks, Discovery Cove, and Sesame Place. With the exception of Discovery Cove, all of these locations are more about guests walking around and looking at attractions, opposed to actual participation. SeaWorld does own Busch Gardens, but the affect should be minimal considering the brand’s stellar safety record.

Conclusion

After the tragic incident at Six Flags, the industry could see some difficult times due to the likelihood of lower traffic  throughout the remainder of the summer. Cedar Fair is likely to be affected but at a slightly lesser extent. SeaWorld, on the other hand, should only be affected minimally, which makes SeaWorld the safest investment in this space at the moment. 

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