Based on the lower end of management guidance, Cedar Fair is expected to grow its 2013 full year revenue and adjusted EBITDA by 2% and 2.3% to $1.09 billion and $400 million, respectively. I am not considering Cedar Fair, L.P. (NYSE:FUN), as it is not a pure theme park operator given its significant hotel exposure. Moreover, it is significantly more leveraged than Six Flags. Also, unlike Six Flags and SeaWorld Entertainment Inc (NYSE:SEAS), Cedar Fair, L.P. (NYSE:FUN) does not have NOLs to minimize corporate taxes.
Listed in April 2013, SeaWorld Entertainment Inc (NYSE:SEAS) operates 11 theme parks. Although SeaWorld has parks located in San Antonio, where Six Flags Entertainment Corp (NYSE:SIX) also has a presence, it is differentiated from Six Flags. SeaWorld Entertainment Inc (NYSE:SEAS)’s theme parks are positioned more as destination parks, serving overseas travelers staying overnight near or within the park. As a result, SeaWorld is relatively more economically sensitive than theme parks with more of a domestic customer base like Six Flags.
SeaWorld Entertainment Inc (NYSE:SEAS) grew revenue 12% year-on-year in the first quarter of fiscal 2013, driven by better yield management strategies with a 10% increase in revenue per capita over the same period. A REIT conversion could be a positive catalyst for the stock in the future, when its NOLs amounting to more than half a billion at the end of 2012 are fully utilized. SeaWorld Entertainment Inc (NYSE:SEAS)’s forward dividend yield of 2.3% is inferior to that of Six Flags, putting it out of contention on my buy list.
Conclusion
Six Flags Entertainment Corp (NYSE:SIX) is not cyclical as perceived by investors, given the increasing contribution of season pass holders to the top line. In addition, I see Six Flags’ asset heavy balance sheet as an advantage, as its theme park assets create formidable barriers to entry for new entrants. However, its recent strong financial performance and competitive advantages seem to have been factored into the share price. At 24 times forward P/E and 12 times EV/EBITDA, Six Flags is overvalued. I will prefer to consider the stock again when it is trading at 8-10 times EV/EBITDA.
The article Not All Cyclical and Capital Intensive Companies Are Bad Investments originally appeared on Fool.com and is written by Mark Lin.
Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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