Guess the Weight at Cedar Fair

At many of the midways operated by regional amusement-park operator Cedar Fair (NYSE:FUN), you'll find the classic game: Win a stuffed animal if a park employee can't guess your weight, age, or month of birth. The game is stacked in favor of the house, of course. The price to play is high, and the prizes aren't as expensive as they look. It's a neat game to watch -- from a distance.

Investors have to play the same guessing game every three months with Cedar Fair itself. That game is becoming even more challenging, now that the company has put on a great deal of weight from acquiring the Paramount Parks chain from CBS (NYSE:CBS) earlier this year.

Let's start playing. For starters, we need to curb our enthusiasm when we come across some of the comparable financials. Adjusted EBITDA, the metric that analysts often favor in analyzing an investment-intensive entity such as Cedar Fair, soared from $164.3 million to $285.5 million during the quarter that ended in September, but this is one time where sticking with taking adjusted EBITDA at face value will burn you.

The company took on a great deal of debt in acquiring the Paramount Parks properties. Interest expense alone rose more than fivefold during the period. It's just not right to give that kind of debt a free pass, or stack on gains at the acquired parks without associated accounting costs. In fact, on a same-park basis, adjusted EBITDA actually fell during the quarter, on the heels of sluggish performance at the company's northern parks.

We also have to remember that this is a highly seasonal business. Unlike Disney (NYSE:DIS) -- and more like Six Flags (NYSE:SIX) -- many of the Cedar Fair parks are open for only a few months every year. How important is the potent summer to a regional operator such as Cedar Fair? Let's put it this way: The company did produce adjusted EBITDA of $285.5 million in for the quarter, yet its target for all of 2006 is a range of $285 million to $305 million. For those scoring at home, with $312 million in trailing adjusted EBITDA, the implication is that the mark will slip a bit here in the current quarter, despite a strong October

So don't make the mistake of simply quadrupling the $2.42 per unit the company earned in the period -- itself less than the $3.11 a unit it earned a year earlier -- to arrive at this year's bottom-line potential. It just doesn't work that way.

By the same token, we can't rush to judgment here, because a sizable integration like the Paramount Parks one will take a few years to be fully absorbed. Cedar Fair has now had three seasons with Geauga Lake, and that park is still posing some challenges.

A recommendation in the Income Investor newsletter service, Cedar Fair says it is committed to continue paying its hefty quarterly distributions. A yield of 6.9% is nothing to scoff at these days, and the company's confidence in keeping the payouts coming is a great indicator of its confidence as the company begins preparing for the 2007 season.

Yes, next year will make it easier to compare Cedar Fair with the previous year's version of the company. There should be improvements in operating efficiencies, and that shiny new Maverick coaster should finally kick its flagship Cedar Point out of its attendance rut. This isn't a bad time to kick the tires.

Step right up! Get Cedar Fair back up on that scale again.

Cedar Fair is one of the many income-producing recommendations in the Income Investor stock research service. If you want to see the service's other high-yielding investment picks, check out Income Investor with a free 30-day trial subscription.

Disney is a Motley Fool Stock Advisor recommendation.

Longtime Fool contributor Rick Munarriz enjoys taking his family on coaster treks over the summer. He did his part by staying over at Cedar Point for a few days back in June. He owns units in Cedar Fair and shares in Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.