Cedar Fair, L.P. (FUN): Which Theme Parks are The Most Fun for Investors?

Cedar Fair, L.P. (NYSE:FUN) has experienced a good rise since the beginning of the year, up nearly 26.40%, much higher than the S&P 500’s gain of around 18.60%. Income investors must love Cedar Fair, with its consistent dividend payment history and high dividend yield. At the current trading price, Cedar Fair offers its shareholders quite a juicy dividend yield at 5.9%. Let’s take a closer look to see whether or not Cedar Fair is a good buy now.

A cash cow with decreasing leverage

Cedar Fair, L.P. (NYSE:FUN) is a publicly traded limited partnership, operating around 11 amusement parks, four outdoor water parks, one indoor water park and five hotels, serving more than 23 million visitors in 2012. Cedar Fair derived its revenue from two main sources: ticket sales, and food & merchandise sales. Most of its revenue, $612.1 million, or 57.3% of the total sales, were generated from admissions, while the food, merchandise and game sales contributed around $342.2 million, accounting for 32% of the total 2012 revenue. According to Broyhill Asset Management, Cedar Fair had a high amount of “day-tripping” visitors who were living nearby, rather than the long-distance visitors of destination parks. Thus, it was a more stable business with a stronger recurring revenue stream, especially in these difficult economic times.

What I like about Cedar Fair, L.P. (NYSE:FUN) is its cash-generating capabilities. In the past ten years, Cedar Fair has managed to generate an increasing cash flow. While operating cash flow increased from $135 million in 2003 to $286 million in 2012, its free cash flow rose from $95 million to $190 million during the same period. Interestingly, the company was also successful in bringing down its debt level. In 2009, its net debt/EBITDA was more than 5.2. Its net debt/EBITDA is expected to decrease to around 3.5 in 2013. Cedar Fair is trading at $42.30 per share, with a total market cap of around $2.4 billion. The market values Cedar Fair, L.P. (NYSE:FUN) at more than 10.2 times its trailing EBITDA.

Enjoys the lowest valuation among its peers

Compared to its peers SeaWorld Entertainment Inc (NYSE:SEAS) and Six Flags Entertainment Corp (NYSE:SIX), Cedar Fair, L.P. (NYSE:FUN) is the cheapest valued among the three companies. SeaWorld Entertainment is trading at $38.30 per share, with a total market cap of nearly $3.6 billion. The market values SeaWorld Entertainment Inc (NYSE:SEAS) at more than 13 times its trailing EBITDA. SeaWorld owns and operates 11 theme parks in the U.S. under several famous brands, including SeaWorld, Shamu and Busch Gardens. It generated most of its revenue, $884.4 million, or 62% of the total revenue, from admissions. SeaWorld had a higher leverage level than Cedar Fair at around 4.2 times its net debt/EBITDA. For the full year 2013, SeaWorld expects to deliver around $1.46 to $1.49 billion in revenue, with an adjusted EBITDA of around $430 million to $440 million. At the current trading price, SeaWorld offers a much lower dividend yield than Cedar Fair at 2.10%.

Six Flags Entertainment Corp (NYSE:SIX) also has a higher valuation than Cedar Fair. At $35.80 per share, Six Flags is worth around $3.40 billion. The market values Six Flags at 12.6 times its trailing EBITDA. Six Flags is consideredthe biggest global regional theme park operator, with 18 regional theme and water parks in the U.S., Mexico and Canada. The company also derived the majority of its revenue, $576.7 million, from admissions, while food and merchandise sales ranked second at $437.4 million. Being a regional theme park operator, Six Flags reported that it had high recurring revenue and the business was resilient in a weak economy.