Thursday, February 18, 1999

Premier Parks Inc.
Phone: 405-475-2500
Website: www.sixflags.com
Price (2/17/99): $28 9/16


The steep summer incline. The frenetic charge back up the hill. What a rush! Is this the newest hypercoaster opening at a Premier Park near you? No. It's just shares of the company itself, on a rollercoaster tear of their own in recent months.

The rocky road began with the company deep into the critical 1998 summer season. With the company deriving the majority of its revenues and all of its profits during the fiscal third quarter, how the summer goes is usually how Premier Parks shares would follow. On August 13 the company announced that earnings before interest, taxes, depreciation and amortization (EBITDA) was going to come in shy of expectations.

For a company that had made it a habit of acquiring amusement parks at the expense of taking on new debt, the "modest shortfall" was enough to send the leveraged shares barreling downward. The company's April buyout of the Six Flags chain from Time Warner (NYSE: TWX) had long-term debt spiking to almost $2 billion. But when analysts overestimated the carnage, it also set the company up to best the watered-down estimates and more than quadruple 1997's third quarter EBITDA when Premier eventually reported in November.

With the high volume Six Flags brand in its arsenal, the company would go on to reformat some of its existing parks. It was a move that would put the firepower back into the company's sleepiest parks, and at the time, its even sleepier stock.


Premier Parks is the world's largest regional theme park company with ownership of 31 different amusement parks in the U.S. and Europe. In terms of attendance, it is second only to Disney (NYSE: DIS). Domestically the company serves 9 of the 10 largest metropolitan areas. Last year the parks hosted nearly 40 million guests worldwide.

The company was born in 1989 in Oklahoma City with only the struggling local Frontier City on its roster. The park has gobbled its way to growth through the years, with no feast as large as the 12-park Six Flags chain bought last year. In true working-your-way-to-the-top fashion, President and COO Gary Story began his amusement park career as a teenage sweeper at Six Flags.


Income Statement
12-month sales: $760.1 million
12-month income: $97.6 million*
12-month EPS: $1.21*
Profit Margin: 12.8%
Market Cap: $2,185 million
(*Includes extraordinary items)

Balance Sheet
Cash: $578.9 million
Current Assets: $690.8 million
Current Liabilities: $196.2 million
Long-term Debt: $2,038.1 million

Price-to-earnings: 23.6
Price-to-sales: 2.9


Fresh off the Six Flags purchase, the company took a closer look at Kentucky Kingdom, a small regional independent park that the company had bought the year before. With a well-capitalized makeover, and adding the Six Flags moniker, summer attendance at the park was up a staggering 35%.

Now Premier has designated even more parks for similarly ambitious makeovers. New Jersey's Six Flags Great Adventure will be getting a startling 25 new rides, including the Medusa, the first rollercoaster where there is no track below or above the riders -- it runs alongside the train itself.

With the buzz of how the Six Flags enhancements will turn around the chosen parks for the 1999 season, it is easy to see why investors are eager to once again board the Premier bandwagon. But that is what made the summer so opportunistic. The surge at the new Six Flags Kentucky Kingdom practically assured that Premier would expand on its rebranding policy -- and there were no lines to ride the stock back then.


There should probably be a height stick attached to Premier stock certificates. It would read something to the tune of "You must be this risk-tolerant to ride this stock." For those who have read Industry Focus 1999, you are probably aware of the fickle and challenging nature of the amusement park industry. And, unlike the other pure park play, Cedar Fair (NYSE: FUN), Premier's balance sheet is a bit of a dark ride.

The company has so much debt to service now that even with a strong summer season analysts still believe the company will post a loss for the whole year. Yet the new Premier is also an exciting company with a new growth strategy. Rather than acquire, it can enhance existing parks. It makes the digestion that much easier, and it shows more focus to try to drum up more turnstile clicks at the freshly renamed Six Flags Adventure World rather than to buy an entirely new endeavor and try to make it fit into the company portfolio.

The prudent Premier is intriguing, but it is certainly not for the timid.

--Rick Aristotle Munarriz

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