Serving the themed entertainment space

Upcoming Q4 Earnings Calls: FUN, SIX, SEAS

Feb 12, 2017

The three primary regional operators of theme parks report earnings over the next few weeks. Cedar Fair (NYSE: FUN) reports first this coming Wednesday at 10:00 am. Six Flags (NYSE: SIX) scheduled its earnings call for the following week. Sea World (NYSE: SEAS) is last to go on Tuesday, Feb. 28th.  It will not only be interesting to see how the year ended, but Q4 earnings calls generally offer visibility into how the new year is shaping up. Investors should focus their attention on year-over-year growth in deferred revenue.  Deferred revenue is a proxy for season pass sales which are the best barometer of how well the new season is shaping up. Deferred revenue includes, among others things, pre-paid bookings and all season dining pass revenue.

The table to the right demonstrates the key data for each operator.  SIX is currently trading at  $60.50, which implies a P/E ratio of 49.6 times earnings.  FUN’s P/E trails SIX.  Its P/E of 22.5 is slightly below that of the S&P 500.  The S&P average was at 24.5x this past Friday.  The premium that SIX’s stock price receives over FUN appears to be based on the market’s perception that SIX has more upside potential than FUN.  Given the successful run of SIX’s management team over the last

seven years, the street’s perception looks justified despite SIX’s miss on Q3.  FUN has been on a pretty good run of its own as of late.  Both operators have EBITDA (TTM) above $400 million dollars. EBITDA less CAPEX, dollars spent on new attractions and maintaining existing infrastructure, are about the same for each operator.


What is more difficult to understand is why SEAS’s stock price has been recovering since mid September 2016.  Its earnings per share — I use the diluted EPS (TTM) which accounts for outstanding stock options, warrants, etc. — was a negative $0.15.  At the end of Q3, FUN earned $2.79 per share and SIX $1.22.  There has been little good news since then, as SEAS’ management continues to suffer with a hangover from the movie “Blackfish”.  SEAS is transitioning from a sea mammal centric entertainment model to an educational/conservationist and ride based one.  We think the strategy sound so long as the educational aspects are downplayed, but the headaches will continue for quite some time.