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Citigroup Upgrades SeaWorld To Buy Citing Favorable Valuation Following Share Price Collapse

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Citigroup Upgrades SeaWorld To Buy Citing Favorable Valuation Following Share Price Collapse
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SeaWorld Entertainment Inc’s (NYSE: SEAS) performance has been hit both by competitive pressure and adverse publicity. Citing some reasons for taking “a more positive stance on the shares,” Citigroup’s Jason B Bazinet upgraded the stock from Neutral to Buy, maintaining the $14 price target.

The $14 target incorporates a multiple that is at the low end of SeaWorld’s historical EV/EBITDA range and is conservative, Bazinet mentioned.

Interpreting The Dividend Cut

Due to competition and adverse publicity, SeaWorld’s EBITDA has suffered significant erosion from the 2013 highs. On September 20, SeaWorld announced a dividend cut from $0.21 per share to $0.00. Management also indicated there could be a share buyback in 2016.

While SeaWorld’s shares responded by plunging 5 percent, there are “two silver linings,” Bazinet noted:

  • Since suggested buyback implies that the company didn't violate debt covenants.
  • SeaWorld could benefit if the saved dividend is redeployed toward capex, boosting attendance in 2018 and beyond.

Some Positives

While there is still “a lot of bad news,” there are “a few reasons to take a more positive stance on the shares,” the analyst commented, citing the following:

  • Some of the EBITDA declines in 2016 are one-time in nature and may reverse in 2017 and 2018
  • The company can use the freed capital to reinvest in park capex and drive attendance in 2018
  • Consensus estimates have been reduced significantly and the risk/reward now appears “more interesting”

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Latest Ratings for SEAS

DateFirmActionFromTo
Dec 2016Janney CapitalUpgradesNeutralBuy
Nov 2016CitigroupDowngradesBuyNeutral
Sep 2016CitigroupUpgradesNeutralBuy

View More Analyst Ratings for SEAS
View the Latest Analyst Ratings

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