The first signs of an improvement in the economy came about two years ago to this investor, when I saw sales at Tiffany & Co. (NYSE:TIF) rise sharply. That told me rich folks were spending again.
Then I saw attendance jump sharply at Cedar Fair L.P. (NYSE:FUN), an operator of numerous theme parks. That meant that the travel and leisure sector might be due for a rebound. Apparently, shareholders at the company felt the same way, because they turned down a private equity buyout for $11 per share.
Smart move. The stock has since tripled.
Cedar Fair also reported first-quarter earnings and, as expected, reported a loss. That’s because Q1 is its slowest season, and results were in line with what we typically see. In fact, the loss was only $65 million compared to $85 million last year thanks to a 5% revenue increase.
Cedar Fair is all about cash flow, and it expects about $390 million in adjusted EBITDA this year. That’s why I’m not worried about its low-cost $2 billion in debt. The company also is comfortable paying out a huge 6% dividend.
Cedar Fair is doing something right, because Great Wolf Resorts (NASDAQ:WOLF) might not even have a ticker symbol by the time this article posts. It has been bought out by private equity after struggling with losses several years in a row. There is some cash flow there — about $20 million annually. I don’t see the wisdom in this buyout, but it’s private equity, and they have their reasons.
Six Flags (NYSE:SIX) might be an interesting turnaround play — or a total disaster on life support. It’s hard to tell.
Six Flags actually went bankrupt a few years back. It also reported a Q1 loss on top of a small loss last year, and is expected to rebound later this year. It sits on $920 million in debt, which costs it $66 million in annual interest, so that’s not great. Cash flow was negative for 2009 and 2010, but very strong in 2011 at $175 million. The company already has huge private equity ownership — seven of the top 10 holders are PE firms with an aggregate 54% position — so perhaps a buyout here could happen as well.
Of course, if you insist on owning theme parks in the first place, you have to go with Walt Disney (NYSE:DIS). You get an incredibly diversified entertainment company along with it that is doing great business all around. Why do a pure play when you don’t have to?
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.