Richard Zimmerman, the Chief Operating Officer of Cedar Fair, L.P. (NYSE:FUN), a $1.8 billion market cap theme park company, bought 3,000 shares of stock on December 21st at an average price of $32.31 per share. This brings his total direct holdings to a bit above 55,000 shares. Studies show that insider purchases are bullish signs (read more about studies on insider trading), and this makes sense as insiders should be reluctant to increase their economic exposure to the company they work for by buying more shares- unless they are particularly confident in the company’s prospects. Our database of insider trading filings shows that there were some smaller purchases by other insiders in November, and another moderate buy in September (research insider purchases at Cedar Fair). Consensus insider buying is a particularly bullish sign, so we thought it would be useful to take a somewhat closer look at the company.
Cedar Fair, L.P. operates several amusement parks and water parks as well as a limited number of hotels for its customers. In the third quarter of 2012, revenue was down slightly compared to a year ago; an increase in accommodations and other revenue partially offset declines in admissions and other park revenue (such as food and merchandise). This was somewhat of a reversal from the first half of the year, as admissions revenue was actually up modestly in the first nine months of 2012 versus the same period in 2011. This is particularly notable as the third quarter appears to generally be responsible for a little over half of Cedar Fair’s annual sales. Net income was also down last quarter compared to Q3 2011, but lighter losses in the first half of the year have left Cedar Fair with EPS of $2.00 so far compared to $1.28 at this point last year.
At 16 times trailing earnings, Cedar Fair, L.P. doesn’t look too attractive in terms of value. At that multiple we would want to see reliable earnings growth. True, the company has been doing very well if we look at 2012 as a whole, but we don’t like the numbers from the crucial third quarter. Analyst consensus is for improved performance in 2013, and so the forward P/E is 14. However, Cedar Fair is notable for its dividend yield, currently at almost 5%. Dividend payments have not been very consistent over the last several years, but the company did manage a consistent 40 cent payment in each quarter of 2012 and combined with the so-so value characteristics it might be a good prospect for income investors. Trafelet Capital and Royal Capital were two hedge funds which had Cedar Fair among their five largest holdings at the end of September.
The company’s closest peer is Six Flags Entertainment Corp (NYSE:SIX). Six Flags is another high yield stock, but its multiples are much higher than Cedar Fair’s: it carries trailing and forward P/E multiples of 31 and 28, respectively. Its net income was up strongly last quarter versus a year earlier, but revenue growth was low and so we’re not sure that it’s sustainable. If it weren’t for the high yield, it would be a short candidate; it might be one in any case. Universal Parks is more or less buried within the rest of Comcast Corporation (NASDAQ:CMCSA)’s operations, but we can also look at The Walt Disney Company (NYSE:DIS) as a peer as well. Disney obviously has many other businesses, but its theme parks have been performing well this year. It trades about even with Cedar Fair in terms of P/E multiples, even though it is a much larger company with strong entertainment assets, though the dividend yield is considerably lower here. Revenue and earnings were up in the fourth quarter of its fiscal year (which ended in September) compared to the same period in the last fiscal year, and overall it might be a better value than Cedar Fair. Of course, income investors might see high yield stocks like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) as better alternatives than Disney.
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