3 Amusement Park Stocks Could Be Worth The Price Of Admission

Investing is a risk-fraught exercise and may not always be fun. However, investing in three amusement park stocks, namely Cedar Fair, L.P FUN, SeaWorld Entertainment Inc SEAS and Six Flags Entertainment Corp SIX can get your money's worth, according to research by Stifel released on Thursday.

Stifel initiated coverage of these three stocks at Buy.

Attracted To Core FUN Story

Stifel analysts Steven Wieczynski and Brad Boyer said they are attracted to the core Cedar Fair story due to its ability to produce consistent results throughout various stages of the economic cycle. The analysts think the planned activation of excess land parcels should accelerate EBITDA growth in the out years, allowing the multiple to re-rate higher.

"When combined with management's commitment to returning excess capital to unit holders through a stable and growing distribution, we see an opportunity for sustainable upper-single to low-double digit total returns in perpetuity," the analysts added.

Stifel recommended owning shares of Cedar Fair based on the following reasons:

  • Capability of delivering on its long-term targets.
  • Activation of development land parcels accelerating EBITDA growth, allowing the multiple to positively re-rate.
  • Core park operations consistently delivering GDP-like growth.
  • A stable and growing distribution strengthening the total return opportunity.
  • Attractive regional theme park industry fundamentals underpining the core business.

Six Flags Is The Best In Class Operator

Stifel views Six Flags Entertainment as the best in class operator and sees an attractive setup in the shares at present. This, according to the firm, is due to the current valuation sitting below the trailing five-year average, despite its expectation for EBITDA growth to accelerate through 2019.

"Furthermore, we expect the pace of 'capital light' high-margin international licensing activity to pick up over the next 12 to 24 months, which should provide adequate liquidity to support management's multi-faceted capital allocation initiatives," the firm said.

The rationale behind investing in these shares:

  • It is the best in class management team with a track record of delivering on long-rage targets.
  • "Capital light" international licensing contracts should accelerate EBITDA growth, allowing for a positive multiple re-rating.
  • Outsized pass holder base (60 percent of attendance) provides near-term stability and long-term growth optionality.
  • A commitment to return excess capital to shareholders.
  • The business is supported by attractive regional theme park industry fundamentals.

Sea World Presents The Most Compelling Risk/Reward Tradeoff

Stifel said it believes Sea World presents the most compelling risk/reward tradeoff in its theme park coverage universe. The presence of a new management team with considerable regional theme park operations experience leaves Stifel highly convinced in the company's ability to execute on its five-point plan, which will effectively make it look more like its regional park operator peers.

Accordingly, the firm sees an opportunity for a positive re-rating in the multiple. Furthermore, the firm believes long-term "capital light" international growth optionality is underappreciated at present, strengthening its constructive investment thesis.

The firm listed the following factors as reasons for owning Sea World:

  • The new, industry-seasoned management team has tackled brand repositioning head on and the business is stabilizing.
  • An immature yield management system and new strategic marketing focus creating a compelling revenue growth opportunity.
  • Margins and capex spend should start to look more like peers.
  • Removal of two key overhangs makes for a more approachable story.
  • Strategic long-term growth opportunities feel underappreciated.

Ratings/Price Targets

  • Cedar Fair: Buy/$78.
  • SeaWorld Entertainment: Buy/$23.
  • Six Flags Entertainment: Buy/$70.
Related Links:

Watch SeaWorld: Massive Stake Acquired For 33% Premium Happiness Just Got Dearer: Disney Park Visits Turn More Expensive For Families

Posted In: Brad BoyerSteven WiecqynskiStifelAnalyst ColorLong IdeasPrice TargetInitiationTravelAnalyst RatingsTrading IdeasGeneral