Goldman Downgrades SeaWorld As 'Recovery Will Take Longer' Than Envisioned

• SeaWorld Entertainment Inc SEAS shares have oscillated between $17 and $20 over the last three months, and are up 5 percent since August 6.
• Goldman Sachs’ Afua Ahwoi downgraded the rating on the company from Buy to Neutral, while reducing the price target from $25 to $20.
• SeaWorld-branded parks deteriorated in 3Q15, news related to the California Coastal Commission is likely to remain negative and the Orlando recovery has been disappointing, Ahwoi mentioned.

Analyst Afua Ahwoi stated, “We believe that the recovery will unfold slower than we expected and key tenets of our Buy rating no longer hold.” He cited three main reasons for the downgrade:

1. Sequential decline in SeaWorld-branded parks – The performance of this brand is being impacted by negative headwinds from San Diego and Texas and deteriorated sequentially by 610bps in 3Q15.
2. Negative news related to California Coastal Commission - SeaWorld Entertainment has already suffered some negative headlines related to the California Coastal Commission. The company indicated that it may pursue legal action against the California Coastal Commission, which could result in more negative publicity. Thus, the headlines are likely to get worse before getting better.
3. Competition to intensify in Orlando – Competition in Orlando is likely to increase in 2016. Ahwoi had expected Orlando competition to be “benign” this year, creating an environment for SeaWorld Entertainment to “regain some lost market share.” Although the performance of SeaWorld Orlando did improve in 2015, next year is likely to be competitive, “as Disney’s Epcot will unveil Frozen and Universal will relaunch its King Kong attraction.”

The EBITDA estimates for 2015, 2016 and 2017 have been reduced from $373 million to $367 million, from $395 million to $389 million and from $411 million to $404 million, respectively. The EPS estimates for 2015, 2016 and 2017 have been reduced from $0.84 to $0.81, from $1.10 to $1.02 and from $1.18 to $1.10, respectively.