SeaWorld's Orca Exit Worth $2 To $8 In Upside, FBR Predicts

FBR’s Barton Crockett maintained an Outperform rating for SeaWorld Entertainment Inc SEAS, with a price target of $27.

SeaWorld has announced its decision to end breeding orcas, and the 29 that it currently has would be the last. The company intends to transition its One World show to an educational format, with San Diego being the first in 2017 and the other two SeaWorld parks following suit over the next two years.

Surprising Upside

“We were surprised to see SeaWorld disclose conclusions from consumer research suggesting that this move will improve favorability 11 to 27 percentage points and consideration to visit by 5 to 17 percentage points,” analyst Barton Crockett wrote.

This is expected to boost attendance by 1.7 percent to 4.2 percent, and revenues by 1.5 percent to 5.8 percent. Moreover, the eventual phasing out of a $15 million brand campaign, which aimed to defend orca practices, would result in a decline in costs. EBITDA is expected to improve by $25 million to $65 million.

“We suspect that positive press and support from animal activists could make this a quicker and more powerful benefit than anticipated,” Crockett said.

Boost To Shares

SeaWorld’s orca exit could be worth between $2 and $8 per share, the analyst commented. He explained that valuing the boost to EBITDA at 7x to 10x, the upside to the company’s shares would be $2.05 to $7.63 per share.