The Walt Disney Company (DIS), Cedar Fair, L.P. (FUN), Six Flags Entertainment Corp (SIX): Play Time in the Stock Market

Amusement parks are fun, but they are serious business. Investors looking at the space should consider industry leader The Walt Disney Company (NYSE:DIS), Cedar Fair, L.P. (NYSE:FUN), SeaWorld Entertainment, and Six Flags Entertainment Corp (NYSE:SIX).

The Walt Disney Company (NYSE:DIS)

People love to be entertained and there is nothing that gets a person moving like an over 65 mile an hour trip through six “inversions” and a 160 foot drop. That type of heart palpitating action comes courtesy of GateKeeper, a new ride at Cedar Fair, L.P. (NYSE:FUN)’s CedarPoint amusement park.

People love new thrills, and that’s one of the key aspects of the industry to watch. If you build it, they will come. If you stop building, customers get bored. Capital spending is a constant and large line item. A park can go a year, maybe two, without new rides, but not much longer.

Then there is the weather. People don’t like to go to parks in bad weather. And they cut back on their visits when the economy is weak. That can help attendance at regional parks like those run by Six Flags and Cedar Fair, L.P. (NYSE:FUN), but it will curtail in park spending. After admission fees, in-park spend is the big figure to watch.

That said, amusement parks can be fun for customers and profitable for investors. Here’s a quartet to watch.

The Mouse

The Walt Disney Company (NYSE:DIS) is probably the best known amusement park operator in the world, but its parks aren’t the most important aspect of its business. So, the company should really be looked at as a media giant that happens to own amusement assets. The real strength in this arrangement is that the company has the unique ability to leverage its media properties throughout its parks. No other company can replicate that to the same degree.

Although the top line dipped in the 2007 to 2009 recession, its been on a general upward course for a decade. Earnings have also been heading roughly higher. The yield at around 1.2% isn’t overly compelling. The shares trade with a price to earnings ratio of around 20, which is about 30% above its five year average. The Walt Disney Company (NYSE:DIS) is never a cheap stock, but the shares appear fully valued today.

The partner

Cedar Fair, L.P. (NYSE:FUN) is structured as a Limited Partnership (LP). That’s odd for a non-energy related company, which increases company specific risk to some degree. That said, LPs are pass through entities that throw off a lot of income. Cedar Fair, L.P. (NYSE:FUN) yields around 5.9% and has a reputation for running top-notch regional parks packed with thrill rides.

The partnership’s top line appears to be growing again after stagnating during the recession. And, after taking on too much debt during a big merger led to a cut, the distribution is heading higher again. Because it’s an LP, you can’t value Cedar Fair, L.P. (NYSE:FUN) the same way as regular companies. However, for income seekers, this is a good option.

Water world

New to the industry, at least publicly, is SeaWorld. The company runs the SeaWorld, Bush Gardens, and Sesame Street parks. There isn’t much historical data to go on when considering this stock, but it offers a good combination of excitement and unique theme so that its parks are both differentiated and destination-worthy trips. And while The Walt Disney Company (NYSE:DIS) has co-opted the jungle park (Animal Kingdom), it has yet to attempt to compete with SeaWorld.

SeaWorld’s top line came in at $1.4 billion in 2012, with earnings of around $0.90 a share. It clearly has a good business. However, the shares trade with a PE of nearly 40. That could make owning the shares almost as thrilling as going to the company’s parks. Investors should keep this one on a watch list for a pullback.

A quick turn

Six Flags Entertainment Corp (NYSE:SIX) has re-emerged from the ashes of bankruptcy as a much stronger company. The top line fell during the recession, but is again on an upward path. And 2012 marked the dramatic end to a long streak of red ink when earnings per share jumped from a loss of around $0.20 in 2011 to nearly $3.20 a share. The company’s renewed strength is also highlighted by its initiation of a dividend.

This might be the best value in the industry, as the company’s PE is only around 10. Moreover, it offers income seekers a yield of about 4.8%. Like Cedar Fair, most of its parks are seasonal, so quarterly earnings are lumpy. But, the turnaround here has been notable.

Big money = Big fun

Amusement parks are great fun and anyone who has been to one knows that they are an expensive trip. Investors can benefit from that by owning shares in publicly traded parks. The Walt Disney Company (NYSE:DIS) is the biggest and best, but is much more than just amusement parks. SeaWorld has parks of a similar caliber, but appears expensive based on its short history as a public company. Cedar Fair and Six Flags Entertainment Corp (NYSE:SIX) both focus on regional parks and returning cash to investors. That should make the pair the most interesting of the quartet, particularly for income investors.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Walt Disney (NYSE:DIS). The Motley Fool owns shares of Walt Disney.
Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Play Time in the Stock Market originally appeared on is written by Reuben Brewer.

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