Theme Park Stocks: Have Fun!

by Lawrence Meyers | May 4, 2012 10:00 am

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[1]) rise sharply. That told me rich folks were spending again.

Then I saw attendance jump sharply at Cedar Fair L.P. (NYSE:FUN[2]), 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[3]) 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[4]) 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[5]). 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[6] did not hold a position in any of the aforementioned securities[7]. He is president of PDL Capital, Inc.[8], which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com[9]. He also has written two books[10] and blogs about public policy[11], journalistic integrity[12], popular culture[13] and world affairs[14].

Source URL: https://investorplace.com/2012/05/fun-times-at-theme-parks-fun-wolf-six-dis/

---