SeaWorld Entertainment (NYSE:SEAS)sees a future where its brand is beloved and its theme parks are buzzing, but the market isn't buying it. Bank of America/Merrill Lynch downgraded the stock on Thursday morning, three days after SeaWorld staged a presentation to discuss its turnaround strategy.
The analyst move is sobering. Bank of America/Merrill Lynch is changing its rating on the stock from a ho-hum neutral to a problematic underperform. It's also slashing its price target from $22 to $19. The only silver lining there is that the stock is actually trading just below that price goal.
Bank of America/Merrill Lynch feels that it will take a long time before SeaWorld's reinvigoration plan bears fruit, and the market seems to feel the same way. The stock initially spiked on Monday when SeaWorld confirmed that it will be ending its leaping killer whale shows in San Diego, but those gains quickly disappeared after the market assessed its near-term chances for success.
SeaWorld is in a funk, but it's starting to stabilize on some fronts. After back-to-back years of 4% attendance declines across its parks, the turnstiles have turned 0.2% more times through the first nine months of 2015 than the prior year's first three quarters. That welcome news was offset by declining revenue -- folks are paying less to enter SeaWorld parks than they used to -- but at least they're starting to spend slightly more once they're inside.
SeaWorld knows that it's been vilified by the masses since 2013's Blackfish portrayed the theme-park operator in a bad light for having orcas in captivity. Attempts, so far, to tell its side of the story have been futile.
CEO Joel Manby has only been at the company for a few months, but the former CEO of the parent company of Dollywood and Silver Dollar City believes that it's not too late. His presentation on Monday offered some subtle ways to win back brand equity, including employees listing their prime conservation goal on their name tags to the not so subtle -- think thrill rides themed to sea rescues.
The problem is that the folks already in the park don't have a problem with SeaWorld. It's why they're there. SeaWorld needs to sway the folks outside of the park, especially the millennials who streamed Blackfish, and don't realize that SeaWorld has third-party data to refute most of the claims raised in the scathing documentary.
Ending the One Ocean show, where Shamu douses guests in the first few rows, will score some points with activists; but more importantly, it may win back the country's zoos that have tried to distance themselves from SeaWorld in the wave of negative publicity. Replacing One Ocean with one where the orcas are presented in a more casual setting -- like the local zoo -- could find more zoo operators rallying for SeaWorld's cause before they come under fire for having animals in captivity.
New rides and SeaWorld taking the first exploratory steps to building on-site resort hotels will pay off down the road, but what SeaWorld needs right now is to prove that it's all about the animals.
Rick Munarriz owns shares of SeaWorld Entertainment. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.