This may seem to be the sleepy season for the operators of national theme parks and regional amusement parks, but that didn't stop Timothy Conder at Wells Fargo from upgrading shares of Six Flags Entertainment (NYSE:SIX) on Thursday morning. The analyst feels that improving cash flow trends support the chain's turnaround strategy, making the goal of hitting as much as $500 million in adjusted EBITDA by next year more than reasonable.
Oppenheimer's Ian Zaffino is also reiterating his bullish outperform call on the stock, adjusting his price target lower given the recent correction in the shares. He feels the purveyor of scream machines will come through with a solid fourth quarter when it reports next month, given the increased operating days at its few year-round parks and expanded holiday offerings elsewhere.
A pair of Wall Street pros putting out encouraging notes on the same day when the regional amusement park giant has most of its gated attractions closed may seem strange, but there's a method to the analyst gladness. Let's go over the reasons why it could be smart to buy shares of Six Flags, Cedar Fair (NYSE:FUN), and even some of the larger theme park operators like Disney (NYSE:DIS) during the seasonal lull.
1. Stocks don't have an off-season
One of the reasons behind Zaffino's reaffirmed bullishness on the stock is that Six Flags tends to outperform during the off-season. Most of its parks may be waiting for the temperatures to warm up before unlocking their turnstiles for the new season in the springtime, but upbeat investors don't have to wait that long to ride.
Six Flags has moved higher in the first quarter in all but one of the past eight years. Cedar Point parent Cedar Fair has also been a winner in seven of the past eight first quarters. Bears will argue that the one down period for both operators was 2018, but for now it's fair to say that it's the exception rather than a new rule. Six Flags and Cedar Fair are off to a strong start in 2019, up 12% and 20% respectively so far this month.
2. Fat yields are fashionable all year
Six Flags boosted its dividend for the eighth consecutive year two months ago. The move pushes the stock's yield up to 6.3%. Cedar Fair also came through with a payout increase late last year, stretching its hikes to seven years in a row. Cedar Fair presently yields 6.6%.
Income investors don't typically view seasonal amusement park operators as traditional high-yielding stocks like utilities or REITs, but that's not fair. Six Flags and Cedar Fair are cutting some pretty hefty distribution checks for their stakeholders every three months.
3. The stage is set for a strong 2019
Disney's move to bump Disneyland ticket prices at least 7% higher earlier this month is great news for the regional amusement park operators. The larger Disney World should follow in the coming weeks, and that will lead to the other major theme park operators in Central Florida and Southern California to follow suit.
Six Flags and Cedar Fair can only benefit from the higher prices at Disney and its smaller peers. They can follow suit, jacking up prices to drive margins even higher. Or they can hold back, improving the value proposition for folks to stay closer to home this summer and make the most of their regional thrill spots.
Six Flags and Cedar Fair can't match the Star Wars: Galaxy's Edge expansion that Disney will open later this year on both coasts, but neither chain is phoning it in these days. They both have a healthy slate of new rides and attractions being introduced across their parks, and that should drive attendance higher this year.