Macquarie Calls US Amusement Parks Group 'Fairly Valued,' Sees 'Upside Opportunity' At SeaWorld

• While shares of SeaWorld Entertainment Inc SEAS and Cedar Fair, L.P. FUN have declined over the past six months, Six Flags Entertainment Corp SIX shares are up 12 percent.
• Macquarie’s Matthew Brooks maintained an Outperform rating on SeaWorld, while initiating coverage of Six Flags and Cedar Fair with Neutral ratings.
• While the sector appears fairly valued, there is upside opportunity at SeaWorld, Brooks stated.

Analyst Matthew Brooks wrote, “The three pure play amusement park operators have roughly 85-90% exposure to the USA…There is potential for stronger sales and earnings at all three parks, but given the potential for lower multiples in Late Expansion we do not want to rely on high growth assumptions in our recommendations.”

SeaWorld: Worst Is Over

Brooks reduced the price target for SeaWorld from $24 to $23. The worst of the Blackfish-linked negativity seems to have passed, and a turnaround can be expected in 2016.

Following two bad years, attendance and pricing have stabilized, Brooks said, while adding, “The new CEO Joel Manby has experience running family amusement parks and is working to restore the SeaWorld brand.”

The analyst believes that SeaWorld offers compelling value and there is more than 30 percent to the base case. “Destination parks like SeaWorld tend to deliver better, and when we add the new resort hotels plus cost cuts using zero-based budgeting, we see an upside scenario where SEAS is worth $39 a share. This is more than double the current price,” the Macquarie report noted.

Six Flags: High Expectations

Brooks established a price target of $55 for Six Flags. After emerging from bankruptcy, the company has delivered robust results and healthy rewards for shareholders, backed by an improving economy and the leadership of James Reid-Anderson.

The analyst added, however, that expectations were high, and Six Flags would need to continue delivering to maintain a premium multiple. “That said, amusement park multiples often fall in Late Expansion, so this is a risk for SIX. Fed hikes could also put the international park JVs at risk.”

Cedar Fair: Good Income Stock

Macquarie established a price target of $58 for Cedar Fair. The company is the world’s sixth largest operator of amusement parks. It has good US consumer exposure, with the country accounting for 90 percent of its sales.

Brooks commented, “With a 2016e yield in excess of 6% plus EBITDA growth of 4- 5% (driven mostly by pricing), FUN is also an attractive income stock.” He added, however, that the stock is already fairly valued.