Six Flags Has the Green Flag at the Moment

By Michael Carter - July 11, 2012 | Tickers: CEC, FUN, SI, SIX | 0 Comments

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In major automobile racing leagues, the green flag is used to start a race.  It is also used to restart a race.  On May 3, 2010, Six Flags Entertainment Corp (NYSE: SIX) was restarted as a publicly traded company and has since come to life with almost 200% gains in share price since its return from bankruptcy almost 3 years ago (including split and dividends), and already a 30% share price gain year-to-date.

Today Six Flags has a lot less parks than it originally had in the early 2000s and late 1990s.  If you go to their home page, you will see that it is easy to count the 19 parks remaining – all in the United States.  This is mainly the result of the huge debt Six Flags had built up before bankruptcy and the closing and selling of several parks.  With fewer parks, that means less overhead, less real estate, less employees to pay, and far less debt.  They have cut their debt by almost one-third since pre-bankruptcy days to around $900 million.  Although the quarterly net income has been bad the past two quarters (losses of $102 million and $115 million for 4^th quarter 2011 and 1^st quarter of 2012, respectively), no one rides roller coasters in the fall and winter.  I expect Six Flags to have great results the next 2 quarters which will move the price to new highs, and I will tell you why.

New CEO & Management

The old CEO Mark Shapiro has been removed and Jim Reid-Anderson is currently the CEO of Six Flags.  He has a solid track record in the healthcare industry and also was part of the board at Siemens AG (NYSE: SI) – a company that today has a market capitalization worth over $70 billion.  One of the companies that he ran as CEO, Dade Behring Holdings Inc, was sold to Siemens AG.  He has also been recognized as a finalist for entrepreneur of the year in the past. 

Another positive for Six Flags was the removal of Daniel Snyder as part of the bankruptcy restructuring settlement.  For the uninformed, Daniel Snyder is currently the owner of the Washington Redskins NFL football team.  The Redskins have had only three winning seasons since he took over in May of 1999.  In the DC Metro area, Daniel Snyder is synonymous with failure, horrible decision making, and wasteful spending.

Fewer Parks Means More Room to Grow

Six Flags might not be able to generate the overall cash flow that it once did in the past, but it also doesn’t need to pay the thousands of employees or the property taxes to its many parks around not only the United States, but the world.  At one point, it owned parks in the countries of Belgium, Netherlands, Germany, Spain, and France.  It still owns parks in Mexico and Canada but at least they are much closer and management can better monitor and make changes to those parks than it could across the Atlantic Ocean.

Fewer parks also mean it can focus on increasing the profits of the 19 parks that are left.  Instead of trying to balance out all the parks if a new roller coaster comes out, or a new theme is created to support a summer blockbuster movie or character, they can better manage and oversee changes easier.  If a new Spiderman or Batman ride appears, they will have the ability to support the other 18 parks similarly far more effectively – especially since all the parks are located in the North America region today.

Entertainment Choices

Today, the competition has increased their prices and Six Flags has remained relatively constant.  Below is a table of competition for Six Flags and other common entertainment choices for young kids and adults:

Note: Six Flags prices above based on Six Flags America, Baltimore/Washington, DC

If you look at the table, Six Flags has not only room to grow as a company, but it can definitely move its ticket prices up a little and still be less than some of the other major theme parks.  When you compare Six Flags to other entertainment choices for kids and young adults, you can see that you get more bang for your buck with a day at Six Flags.  Even though prices for other entertainment activities have gone up considerably – especially movies, Six Flags is about the same price during that same time frame.

Stock Price

Looking at primarily the stock price and making money, I believe Six Flags should be put in your speculative stock buys or at the very least at the top of your watch list.  It has a lot of room to grow from here and has recently increased its dividend from $0.06/share to $0.60/share.  The stock does have a ridiculously high P/E ratio of nearly 900.  There is also still that relatively huge debt that won’t be going away anytime soon, even though it is much less than it was a few years ago.

If you believe history will repeat itself, then you might be expecting a slight pullback or sell-off in the coming summer months.  In over half of the past years dating back to June 1996 of the old Six Flags traded stock, there was a dip in share price in the June-August time frame.  However, history seems to be just that, history.  The new Six Flags now has a dividend, new management with proven experience, and a new business strategy - less is more.  With the new Batman franchise booming in the movie theaters and Six Flags having long-term licenses to DC Comic characters among others, the new Six Flags in my opinion rises.

July 24, 2012 is the next scheduled earnings date and I believe it will be a surprise to the upside like in 2011.  In 2011, the earnings surprise for the next two quarters (June and September) was 26.5% and 38.9% with earnings of $0.62/share and $3.43/share, respectively.  With the mild winter and the nice weather we have had in 2012, although hot (Don’t forget that 6 of the 19 parks Six Flags currently owns are water parks), it should be expected that Six Flags has had a great turnout this season so far. 

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