Six Flags Entertainment Corp (SIX) Offers More than Just Thrills

Ever dream of owning a theme park? While it may not be realistic for everyone to have his or her own theme park, investors can fulfill this dream by becoming a shareholder of Six Flags Entertainment Corp (NYSE:SIX). Six Flags Entertainment Corp (NYSE:SIX) owns and operates 19 parks, 17 of which are located in the United States, plus one in Mexico and one in Canada. Six Flags Entertainment Corp (NYSE:SIX) has grown remarkably after emerging from Chapter 11 bankruptcy a few years ago. Its improvements can be seen from several fronts, including more efficient management, a more focused strategy, and stronger innovation.

Six Flags Entertainment CorpCompetitive edges

As stated by Jim Reid-Anderson, Chairman, President & CEO of Six Flags Entertainment Corp (NYSE:SIX), at the Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference, the theme park industry is actually more stable than many investors thought and generates steady cash flows with high recurring revenue. The business also has a high barrier to entry as a new company needs to secure $300 to $500 million and obtain a number of government and local authority approvals before establishing its presence. Players in the theme park industry do not compete head-to-head directly, as most of the parks are located in different regions and have unique themes.

Fundamental improvements

After emerging from its bankruptcy, the Six Flags Entertainment Corp (NYSE:SIX)’s management has significantly improvement its efficiency and created a strong alignment between employees and shareholders, as almost 2,000 of its employees are shareholders. The management is now highly focused and deploys only one simple strategy – to become the leader in regional theme parks. Six Flags continues to innovate by following strict investment principles. The company has spent 60% of its capital on innovation in new products, with the total spending equaling 9% of revenue (roughly $100 million). The company has also lowered its overall cost from 75% of sales to 61%. Management believes that more techniques can be leveraged to drive down costs and continuously to expand margins.

Strategically, Six Flags Entertainment Corp (NYSE:SIX) has shifted its marketing focus from national to local with most guests coming from within 100 to 150 miles of the park. The current “Go Big!” campaign is targeting local residents via the channels of local TV, local radio, cinema, and Internet advertising. Instead of discounting, Six Flags now focuses on values and has initiated very strict pricing disciplines. The company continues to work on price improvement by increasing its value offerings.

Season passes as the main growth driver

Management is also working on improving its season pass penetration, which it views as “the weapon for the future,” as it gives the company a pricing opportunity. Every season pass holder will generate higher revenue and higher profitability with each visit. The company is also seeing solid in-park revenue growth with new offerings and innovations, including all-season dining passes. By boosting the parks’ repeating traffic via higher season pass penetration and increasing the per capita spending of visitors through new offerings, Six Flags continues to achieve solid growth for its revenue.

Other peers

While Six Flags claims that there is no real competitive player in the regional markets, there are other theme park operators that are benefiting from economic recovery. These include SeaWorld Entertainment Inc (NYSE:SEAS) and Universal Parks and Resorts, the theme park division of NBC Universal, which is owned by Comcast Corporation (NASDAQ:CMCSA).

With its recent successful IPO, SeaWorld Entertainment Inc (NYSE:SEAS) connects people with nature and animals in an exciting and educational way. SeaWorld is well positioned for growth with its strong competitive edge due to its well-known diverse brands, differentiated theme parks, and the world’s largest zoological collections. On June 4, 2013, Wells Fargo initiated an “outperform” rating on SeaWorld with a price target of $40 to $42, indicating a 10% to 15% upside potential as of the closing price on June 5.

While NBC Universal suffered a 2.4% drop in revenue to $5.34 billion in the first quarter, its theme park revenue jumped 12.2%. The revenue was boosted by attendance growth at NBC Universal parks, which continued to benefit from the success of the “Harry Potter” attraction in Orlando and the “Transformers” attraction in Hollywood. The company’s theme parks segment now generates the highest margin of Universal’s parent, Comcast Corporation (NASDAQ:CMCSA), contributing $953 million in operating cash flow with $2.1 billion revenue in 2012.

Bottom line

By emerging from bankruptcy and significantly reducing its debt, Six Flags is now in much better position financially to leverage its assets. With highly focused strategy and continuous innovation, more long-term growth is expected for Six Flags while it keeps improving its fundamentals.

The article Six Flags Offers More than Just Thrills originally appeared on Fool.com and is written by Nick Chiu.

Nick Chiu has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Nick is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!