A rough year for SeaWorld Entertainment (SEAS +2.47%) investors is getting even bumpier. Shares of the theme park operator traded lower on Thursday after an analyst downgrade. SeaWorld stock was already trading 21% lower year to date before Thursday's drop.
Matthew Brooks at Macquarie is lowering his rating on the shares from outperform to neutral. The downgrade is accompanied by a lower price target, as Brooks is slashing his goal on the shares from $22 to $15. Brooks feels that the potential turnaround is taking too long to materialize, and judging by the stock's languishing return in recent months, it's safe to say that he's not alone.
Image source: SeaWorld Entertainment.
Chasing the big whale
This was already shaping up to be a bad week for SeaWorld. Kyara, the three-month-old killer whale calf that was born in SeaWorld San Antonio -- celebrated at the time as the last planned birth at any of its parks since it ended its orca breeding program earlier this year -- died after being treated for an infection. The death angered activists, even as SeaWorld argues that the likely cause of pneumonia is common for whales in the wild, too. SeaWorld was showing some signs of overcoming the fallout of 2013's Blackfish documentary, but Kyara's death picks at the scab.
Theme park trends for the company behind the SeaWorld, Busch Gardens, and Aquatica gated attractions were starting to stabilize. Turnstile clicks moved higher in 2015 after back-to-back years of declines, and last year's 2% decline in attendance was acceptable to investors that sent the shares higher in back-to-back years on a dividend-adjusted basis. However, sluggish attendance trends early in 2017 and the end of its once beefy quarterly payouts have weighed on the stock's allure this year.
SeaWorld experienced a brutal 14.9% plunge in attendance during the first quarter of this year, as Latin American tourism weakness, the timing of the travel-happy Easter holiday, and construction at SeaWorld San Diego weighed on its magnetism. Things may not seem to be getting any better during the second quarter that ended last month, according to Brooks' downgrade. He's eyeing a lower lease payment by SeaWorld for its original park in San Diego as an indicator that revenue that has slipped through the first five months of this year. He feels that changes made to its flagship killer whale show -- a shift away from controversial performances to more educational exhibitions -- is hurting attendance, a problematic development as SeaWorld plans to follow suit at its SeaWorld attractions in Texas and Florida.
Brooks warns that reviews for some of this year's new attractions have been disappointing. SeaWorld was hoping that the new Ocean Explorer mini-submarine ride in San Diego and the virtual reality-enhanced Kraken Unleashed coaster makeover in Orlando would drum up visitors, but that doesn't appear to be happening. The Los Angeles Times calls Ocean Explorer a "slow and boring" addition the park, and Kraken Unleashed has been ridiculed for its low hourly capacity.
Brooks also points to big moves by its larger rivals in California and Florida that will woo guests to those new rides in the coming years. We'll know more in two weeks when SeaWorld reports fresh financials, but at least one Wall Street pro feels that the seasonally potent quarter's performance will be fishy.
