3 Turnaround Stories at 3 Different Stages

Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In basketball, when a player posts up (back against a defender), in order to shoot and score, he/she has to turn around to face the basket.  This can be achieved by turning in the air and timing the jump shot when the defender it not likely to jump and challenge the shot.  Michael Jordan perfected this to create his nearly unstoppable fade-away jumper.  The turnaround jump shot is somewhat analogous to what the 3 companies below have completed, are in the process of completing, or are still facing opposite to the basket.  

Six Flags

In July of 2012, I wrote an article about the world’s largest amusement park company Six Flags (NYSE: SIX) called Six Flags Has the Green Flag at the Moment

In the article I talked about why Six Flags is a great speculative stock buy with my last sentence in the introduction being my bold predictions that over the next 2 quarters, the stock would move to new highs.  Since my July 11, 2012 article, the stock has gone up over 34%, the dividend has increased 50%, and the current share price is at an all-time high under the ‘new’ Six Flags.  However, this article isn’t about the past, it is about what I believe is ahead for the company after their successful turnaround.

Recently, Six Flags reported its 4th quarter 2012 net income was $143.83 million compared to a huge loss of $102.01 million during 4th quarter 2011.  The $383 million of adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) in 2012 was a record-high and a 9% increase over 2011.  CEO Jim Reid-Anderson believes $500 million of adjusted EBITDA by 2015 is aspirational.  I believe it is well-within reach.  Season passes, the gloomy economy, and new rides are why I feel Six Flags is going to continue to beat analyst estimates in the coming years.

Ticket prices vary slightly from park-to-park but generally Six Flags is known to price season passes just slightly above daily passes.  In looking at the Six Flag America in Washington DC, something more interesting is discovered.  If you buy a daily pass at least 3 days in advance, the price is $39.99.  However, you need to park too and that will cost you $20 for a total of $59.99.  A season pass is $59.99!  Additionally you can get a gold pass for $79.99 that offers VIP early entry and other perks.  What does this all mean?  It means Six Flags wants you to get a season pass.  This pricing system heavily benefits the company because the more you come, the more you eat, the more you drink, the more you buy, and the more you spend which goes to Six Flags’ bottom line. 

In my opinion, what is somewhat overlooked is that the down economy actually helps Six Flags – especially the possible government-wide furloughs that are being debated that will cut incomes for thousands of federal employees by at least 10%.  What happens when kids want to go on vacation during the summer and parents need to conserve their money and postpone that trip to Disney World?  They go to their nearest Six Flags.  While $59.99+ isn’t cheap, it is still a lot less expensive than driving long distances or flying to reach a destination.

Lastly, new rides by Six Flags show customers that the company is still innovating.  There is a reason to go back if you haven’t been to a Six Flags in a few years.  A new ride like the Texas SkyScreamer, which is now the world’s tallest swing ride at 400 feet above the ground, shows that Six Flags has something to offer no other place can, and innovations like this throughout their 18 parks in the United States, Canada, and Mexico provide the real potential for Six Flags to continue to beat expectations.

SIX Total Return Price data by YCharts

World Wrestling Entertainment

While Six Flags was able to turnaround, jump, shoot, and make the shot as a company, World Wrestling Entertainment (NYSE: WWE), is just in the turnaround phase in my opinion with no indication they will make the shot… hit the rim… or even the backboard.  The past 6 months, the stock is mostly unchanged (a far improvement to the previous 5 years and nearly a 50% decline), while the past 3 months show some hope that changes are happening behind the curtains and investors are buying into that hope as the stock has risen over 8%. 

There is no doubt that there are a ton of obstacles WWE is posting up against today.  Pay-per-view (PPV) buy rates are sinking every month, old stars are getting older, and WWE Studios continues to produce one bad film after another.  On top of that, income is declining across every segment in the company with exception to WWE Studios which is just ‘less’ negative.  Based on 3rd quarter 2012 earnings, the Live and Televised, Consumer Products, Digital Media, WWE Studios, and Corporate segments contributed to operating income of just $5.0 mil for the quarter compared to $15.9 mil in 2011.  4th quarter 2012 earnings are set to be released February 28, 2013.

I see a light at the end of the tunnel for WWE – although it is very dim and requires a Hubble Space Telescope.  Both Brock Lesnar’s and The Rock’s supposedly temporary stays have turned out to be a lot longer than most fans predicted and seems to be helping gain the casual fans back to some degree.  It looks like WWE has decided that 3 hours of Monday Night Raw is better than 2.  This is still being decided among management and fans alike.  WWE Saturday Morning Slam, which is rated TV-G, debuted last year looks to compete against cartoons and other shows geared towards kids.  More importantly, new talent is being created in WWE universe with a new group named The Shield beating 4 of the biggest faces (stars) in the WWE in recent weeks. 

What may be less obvious to investors that don’t follow the WWE consistently is that last week, the championship belt was redesigned and introduced by the Rock.  While this might sound like nothing to the untrained eye, this is actually very symbolic on the real possible shift the company  has in store in the coming years – for better or worse.  The previous design known as the ‘spinner’ belt was first introduced by John Cena back in 2005.  The change to a more classic belt could mean the title is up for grabs as new stars progress within the company.  The change could mean that an era is fading away and a new one is starting to begin, maybe one with a little more attitude.

WWE Total Return Price data by YCharts

Coach

If Six Flags swooshed their turnaround shot and WWE is in the process of taking the leap, Coach (NYSE: COH) still has their back to the basket.  In the past year, the stock has fallen over 36% and year-to-date it has already dropped over 14%.  Known mainly for women’s handbags, Coach is a leading American marketer of fine accessories and gifts for women and men which includes bags, accessories, business cases, footwear, jewelry, travel bags, watches, and fragrance and is well-off its share price peak in March of 2012.

The most recent earnings missed EPS estimates at $1.23/share ($1.18/share previous fiscal year’s quarter) vs. $1.26/share estimates while same-store sales fell 2% (first decline since the Great Recession).  Additionally, Coach announced a rebranding effort on its footwear and clothing segments which hints that Coach is losing hold of its core moneymaker – handbags – to become more of a lifestyle brand. 

Diversification might not be such a bad thing for Coach, however, if Fossil is to hint at what is possible when extending a brand from a main product line.  Fossil in the early to mid 90s restructured its business to sell items otherwise unrelated to its watches segment to include handbags, wallets, belts, and even sunglasses.  It is therefore very possible for Coach to see big returns in the future as it extends its own brand and reduce its reliance on handbag sales to fuel growth.  One caveat though is Coach should not ignore its handbag line because diversification doesn’t mean it is inevitable to become a jack of all trades and an ace in none.

COH Total Return Price data by YCharts

Making the Shot

Six Flags was doubted on by nearly everyone in June of 2009 when it filed for bankruptcy protection after falling below required minimums to remain listed on the New York Stock Exchange.  However, it not only turned around, but it sunk a long 3-pointer despite all challenges and analysts alike.  The WWE is stuck between a rock and a hard place.  Their business model relies on PPV income which is for the most part a very outdated way to make money in today’s economy.  If they can find a way to balance or halt PPV buy-rate declines with their other segments and possibly make a decent movie, they may find a way out of the chokehold they are currently in.  Coach is in the earliest stages of a turnaround and only the consumer will decide their fate.  The world is a lot different than it was 10-15 years ago and there are far more options and competitors in the handbag marketplace. 


mikecart1 has a long position in World Wrestling Entertainment. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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