A lot of stocks have taken a beating, and with most of the publicly traded amusement park operators shedding more than half of their peak values, I figured it was time to go shopping.
I bought into shares of SeaWorld Entertainment (PRKS 0.92%), Six Flags (SIX), and Cedar Fair (FUN) on Wednesday. I can't sugarcoat my entry points, as the three stocks that I figured I was buying into at rock-bottom prices continued to plummet. Even after Friday's bounce following Thursday's plunge, I am down 26%, 14%, and 13% on SeaWorld, Six Flags, and Cedar Fair, respectively.
I didn't buy the theme park giants. I already own a good chunk of Disney (DIS 0.70%), and Universal Studios parent Comcast (CMCSA 0.70%) is a great theme park operator, but I'm not keen on many of its larger businesses. My timing was lousy. Most of the operators would go on to announce park closings or delayed seasonal openings in an effort to contain the coronavirus outbreak. I still like the industry's chances to bounce back.
Let's dive into why I feel I made the right call with the three out-of-favor operators at the start of one of the darkest periods for the industry.
SeaWorld -- 66% below its 52-week high
SeaWorld Entertainment has always felt like the Charlie Brown of theme park operators, getting the football pulled away just as it's ready to kick it through the uprights. It went public in 2013 in an initially well-received offering, only to have its reputation dragged through the saltwater with the release of the Blackfish documentary two months later.
The operator of its three namesake attractions, a pair of Busch Gardens parks, and several themed water parks seemed to finally be getting its act together in 2018. Attendance soared 9%, and while it only managed a marginally positive gain in visitors in 2019, it was a positive year stacked on top of the prior year's blowout results. Despite going through more CEOs than Spinal Tap went through drummers, SeaWorld stock was finally approaching its post-IPO gains in late February, and then coronavirus came to crash the party. In just 18 trading days, we've seen SeaWorld go from hitting a six-year high to plunging 66% by this week's close.
There is still a lot to like when it comes to SeaWorld. It's still a controversial name, but with an emphasis on new rides -- each of its SeaWorld and Busch Gardens parks is getting a major new roller coaster this year -- there's less to worry about if animal rights activists ultimately get their way. SeaWorld's leveraged balance sheet is a concern during the business interruption that starts next week, but it's been more careful with its money since suspending its dividend in 2016.
Image source: Six Flags.
Six Flags -- 72% off its 52-week high
Regional amusement park operators would seem to be the least likely to get swept up in the coronavirus sell-off. Many of the parks are seasonal, opening after the weather warms up in the spring and peaking in the summer. They also tend to draw locals, unlike the heavy flow of globetrotters hitting up Disney, Comcast's Universal Studios, and SeaWorld, which make containment more difficult.
However, Six Flags wasn't doing so hot even before COVID-19 became a thing. Its base business featured flat attendance and guest spending per capita in 2019, and a series of items weighed on its bottom line. Six Flags also announced that its CFO would be retiring this summer and that it would be slashing its dividend by 70%. Guidance also wasn't very encouraging for the operator of 26 parks.
The stock has actually taken a bigger hit than its dividend cut since peaking last year, so the yield is actually higher than it was when Six Flags stock was at its highest point last summer. Six Flags is still a fixer-upper situation, but it's an iconic brand with a sustainable dividend.
Cedar Fair -- 59% below its 52-week high
You know an industry is out of favor when a stock has fallen 59% since topping out in October, yet it's the relative winner of the lot. Cedar Fair's healthy yield that currently stands at 14.1% has helped cushion the blow, but obviously that payout rate won't be sustainable if profitability comes under pressure this season.
Cedar Fair held up better than Six Flags last year. The 9% increase in revenue was the handiwork of an 8% uptick in attendance and a slight increase for in-park per capita spending.
All three stocks are cheap, trading at single-digit earnings multiples for 2020. Those estimates have been understandably drifting lower, but you have to like the industry's long-term chances. Even as the country braces for a recession, looking out to 2021 has to feel pretty good with all three chains building out their operations.
I didn't nail the bottom. I wasn't even close. I still like where I will be a year from now after buying into iconic operators at today's depressed price points.
