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Cedar Fair, L.P. (FUN), Six Flags Entertainment Corp (SIX): Are These Stocks a Thrill Ride?

Modified EBITDA rose from $109.6 million to $120.5 million. After incurring a net loss of $24 million the first six months of 2012, Six Flags Entertainment Corp (NYSE:SIX) earned a net profit of $4 million so far this year. This $28 million improvement resulted in an $11 million gain in EBITDA because an interest expense was significantly higher this year. Net debt was $1.2 billion at the end of the quarter, up from $776 million at the end of last year.

In the first two quarters of the year, Six Flags Entertainment Corp (NYSE:SIX) paid stockholders dividends of $88 million and repurchased $404 million of common shares. Another bright spot, cash-flow wise, was that sales of season passes and membership plans increased $23 million to $130 million.

What we learned

Each of these well-established amusement-and theme-park operators merits consideration by investors. They have a wonderful advantage called “already being there.” The cost for competitors to enter the market and build their own theme parks would be enormous. In addition, each of the companies has a powerful brand name and positive brand image. Consumers flock to their parks, ready to spend.

The downside is that the sheer size and capitalization of these parks is a limitation to each company’s growth. A restaurant chain can comfortably add 50 new franchise locations per year, for example. Theme-park operators have to try to build sales within their existing parks and add new parks slowly.

The lingering effects of the recession also can put the brakes on revenue growth. Going to these parks is not an inexpensive entertainment experience. As the companies reported, the per capita expenditure is $40 to $60.

The strategic goals for an amusement/theme park operator are straightforward: get more people into the parks and get ’em to spend more per person while they are there. To stay relevant to today’s entertainment-seeking consumer, parks must continually add fresh attractions to dazzle visitors — which requires spending dazzling amounts of money. This is a capital-intensive industry as reflected by the debt on the balance sheets of these companies.

About the stocks

SeaWorld’s strategy of higher prices may result in continued year-over-year declines in attendance at a time when demand is increasing. A less crowded park, however, can mean a better overall guest experience. This would be my third choice.

Six Flags Entertainment Corp (NYSE:SIX) would be my second choice because of its revenue performance and the cash returned to shareholders.  The higher debt load and interest costs year-over-year, however, are red flags.

My favorite is Cedar Fair, L.P. (NYSE:FUN) because of the diversity of the attractions it offers and because the company achieved the highest percentage increase in revenue.

The article Are These Stocks a Thrill Ride? originally appeared on Fool.com and is written by Brian Hill.

Brian Hill has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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

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