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This IPO Won't Make You Soaking Rich

By Rick Munarriz - Apr 19, 2013 at 4:16PM

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SeaWorld has a successful IPO today, but the valuation may make you seasick.

SeaWorld Entertainment's (SEAS -2.27%) killer whales and dolphins aren't the only ones making a big splash today.

The operator of aquatic theme parks opened nicely higher in this morning's IPO, and that was after underwriters increased the size of the deal and managed to price it at the high end of its initial range.

SeaWorld opened at $30.56, well above Thursday night's $27 pricing. It's an impressive start, especially since the offering was juiced up from 20 million shares to 26 million shares. Clearly investor appetite is there for a recognized consumer-facing brand.

The big winner here is Blackstone Group (BX), the private equity firm that snapped up the theme park operator four years ago in a $2.3 billion deal. Blackstone has made some of that back in the form of dividends, and it will still retain a controlling interest despite selling 16 million of the 26 million shares being offered this week.

With 92.7 million shares outstanding after this morning's debut, SeaWorld's market cap of $2.8 billion values the company at more than Cedar Fair (FUN -2.48%) but less than Six Flags (SIX -2.77%).

Get used to seeing SeaWorld compared to Cedar Fair and Six Flags. SeaWorld may not be a traditional seasonal amusement park operator in the mold of Cedar Fair or Six Flags. Its richly themed parks tend to be located in warmer climates that provide year-round operating calendars. However, now that investors associate amusement parks with meaty dividends -- Cedar Fair yields 6.1% and Six Flags pays out a more than respectable 5% dividend -- it clearly influenced SeaWorld into making sure that it's a generous distributor.

SeaWorld has committed to an initial quarterly rate of $0.20 a share. That may only translate into a yield of 2.6%, but SeaWorld is also growing a bit faster than its peers.

SeaWorld's revenue climbed 11% in 2011 and another 7% last year. By comparison, Cedar Fair and Six Flags have grown their top lines by 4% to 6% in each of the past two years.

It's also fair to argue that SeaWorld will command a market premium to its regional rivals because it has greater potential to be a content play. Disney (DIS -0.70%) is naturally the gold standard in turning iconic characters into theme park attractions. Occasionally it succeeds the other way around as its Pirates of the Caribbean and Haunted Mansion rides have become lucrative theatrical properties.

SeaWorld will never be at Disney's level, but some of its signature killer whales are recognized by name. SeaWorld is also hoping to turn this year's opening of a new penguin-themed attraction in Orlando into the springboard for an animated character called Puck that will be featured in merchandise and app games.

One thing that investors diving in today will want to keep an eye on is the stock's valuation. SeaWorld opened at more than 30 times last year's earnings, and that's far richer than the multiples that Cedar Fair and even Disney are commanding. Six Flags trades at a similar multiple.

The valuations for the regional amusement park operators aren't exactly cheap, but Cedar Fair and Six Flags have fat dividends to keep income investors close.

SeaWorld has a lot of potential -- especially if it takes off as a content play when Antartica: Empire of the Penguin opens -- but a lot of the near-term upside may have been used up by today's pop.

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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
$102.42 (-0.70%) $0.72
The Blackstone Group L.P. Stock Quote
The Blackstone Group L.P.
Six Flags Entertainment Corporation Stock Quote
Six Flags Entertainment Corporation
$28.06 (-2.77%) $0.80
Cedar Fair, L.P. Stock Quote
Cedar Fair, L.P.
$43.95 (-2.48%) $-1.12
SeaWorld Entertainment, Inc. Stock Quote
SeaWorld Entertainment, Inc.
$54.76 (-2.27%) $-1.27

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