3 Reasons To Like SeaWorld's Stock

Shares of animal theme park operator SeaWorld Entertainment Inc SEAS are trading near the low-end of its historical multiple of 8.2 to 11.2 times EV/EBITDA and Wells Fargo thinks the case for multiple expansion can be justified for several reasons.

The Analyst

Wells Fargo's Timothy Conder upgraded SeaWorld from Market Perform to Outperform with an unchanged $32 price target.

The Thesis

The bullish case for SeaWorld's stock is based on three factors, Conder said in the upgrade note.

First, management's turnaround strategy is showing signs of results, including year-to-date 2018 results that shows a 9.5 percent year-over-year revenue lift and 35 percent EBITDA growth. Some of the initiatives working in management's favor include animal rescue, rehabilitation, education and conservation, as well as the inclusion of thrill rides and events at parks.

Second, the analyst said management's 2020 targets of improving adjusted EBITDA by $175-$200 million from 2017's level to $475 to $500 million looks reasonable. This is a reasonable outlook due to improvements in attendance, annual pricing increases, improved revenue management and cost savings.

Third, the company's improving free cash flow profile supports management's investments new projects and maintain ace. SeaWorld is also investing in hotels adjacent to its parks which add incremental revenue and supports the likelihood of a small dividend being paid to investors in the longer term.

Price Action

Shares of SeaWorld traded at $26.03 Thursday afternoon.

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