Shares of United Parks & Resorts (PRKS 0.25%) rose 5% on Wednesday after posting better-than-expected first-quarter results. Though, it wasn't enough to sway all the naysayers to the bullish camp. Let's welcome Ben Chaiken from Mizuho to the Splash Zone.
The analyst initiated coverage of the theme park operator two months ago, tagging it with an Underperform rating and a price target of $47. He's raising his price goal on shares of the company formerly known as SeaWorld Entertainment to $48 following the financial update, but the stock itself jumped $2 higher on Wednesday.
Is he underestimating the potential for the operator of SeaWorld, Busch Gardens, Sesame Place, and several water parks to have a strong summer? Is his concern about a rival opening a major new theme park next year overblown? Let's hop on and secure the coaster restraints. We're going for a ride.
NYSE: PRKS
Key Data Points
The ups and downs of theme parks
It's been three months since United Parks rebranded itself, likely to distance itself from more than a decade of negative connotations about its flagship brand since the Blackfish documentary turned a critical eye to operators of marine life theme parks. Wednesday's update wasn't as exciting as the market's positive reaction.
Revenue rose a mere 1% to $297.4 million in the first quarter, fueled by a 2% increase in attendance and a 1% dip in revenue per capita. A net loss of $11.2 million isn't a problem. This is a seasonal business, and the first three months of the year pale in comparison to the rush of Spring Break, summer, and holiday crowds.
The deficit was actually its second-smallest net loss for the period and a 32% improvement over the prior year's red ink. Adjusted earnings before interest, taxes, depreciation, and amortization rose 9% to hit a new quarterly record of $79.2 million.
It was a beat on both ends of the income statement. Analysts were holding out for a much larger loss on a decline in earnings. Exceeding expectations during a historically sleepy quarter isn't as important as a blowout performance in its next two reports, but it's a good start to an old company with a new name.
Mizuho's note concedes that the first quarter topped expectations, but the firm remains cautious as Comcast's (CMCSA +0.00%) Universal Orlando prepares to open Epic Universe next year. The new park will be impressive in nearly every way, but will it hurt United Parks more than it hurts the operator?
Image source: United Parks & Resorts.
Epic concerns
It's only natural to be concerned. Roughly half of United Parks' gated attractions are located in Central Florida, and Epic Universe will open five miles away from SeaWorld Orlando, the most popular of the chain's destinations. However, assuming United Parks will suffer rather than benefit from the shiny new theme park misses the point.
Disney (DIS 0.75%) and the smaller United Parks will see a spike in guests going through the turnstile of a rival's new attraction. However, that will also likely be accompanied by a surge in overall tourists to the Central Florida market to check Epic Universe out for a day or two. What will they do the rest of the time?
Comcast's Universal Orlando resort will be the biggest beneficiary of Epic Universe, of course. However, only so many guests will be able to check it out on any given day before it reaches capacity. Universal has yet to indicate pricing for single-day admissions or whether the new destination will immediately offer an annual pass the way its existing parks do.
United Parks' SeaWorld, Busch Gardens, and Aquatica will stand out as viable and cheaper options, particularly to locals who can make the most out of the annual pass product, which may not initially happen for Epic Universe. If there is a year-round option for access to Epic Universe next summer, it likely won't be cheap and may come with restrictions and blackout dates so the place can prioritize more lucrative guests on single-day tickets.
United Parks will be fine. All three major theme park operators in the area benefited in recent years as Disney has outspent the competition on expansion and new additions. Disney recently doubled its budget on theme parks, cruise ships, and other experiences to $60 billion over the next 10 years. Disney and Comcast will only bring more visitors to the area in the coming years.
United Parks doesn't have the same kind of capital to participate in the competition, but it's still managing to open new thrill rides at its most popular theme parks this season. It will open its eighth coaster at SeaWorld Orlando this summer, more than any single Disney World park or all of Universal Orlando has to offer.
Epic Universe will be "epic" for Comcast, but it will also likely be an "epic" contributor to the rising guest counts at Disney and United Parks. In the meantime, United Parks is the much cheaper theme park play, trading for less than 12 times this year's projected earnings.
