If you have snow on the ground where you live, now is a good time to be reminded that the amusement park season is right around the corner. And for companies like Cedar Fair (NYSE:FUN) and Six Flags (NYSE:SIX) this is the time of year when the company makes its money.
Much like retail stocks, entertainment stocks like Cedar Fair and Six Flags have a short window to make their revenue. For the majority of the year, they are shut down. For a while, Six Flags tried to skirt around this problem with aggressive expansion. It didn’t work out well. The stock bounced back nicely, largely because the company took a new asset-light approach. However, in the last six months, SIX stock has plummeted for a number of reasons.
One of them, ironically, has to do with its international expansion plans. The company is attempting to open a number of parks overseas. I wrote about the problem last month. Six Flags is licensing its brand to local companies within the respective countries. The problem is that the company is attempting to open a park in China.
The current state of Six Flags
Back in December, the company reported that the company it was partnering with, Riverside Investment, was in default of its obligations. This was due to the softening Chinese real estate market. And more notably this occurred before the coronavirus outbreak. As Six Flags is finding out, it isn’t easy being a landlord when your tenants can’t pay the rent.
Six Flags reports earnings on February 20 and the earnings whisper number suggests that the company will come in below analysts’ estimates. The consensus is for 14 cents earnings per share (EPS). However, the whisper number puts the EPS at 11 cents.
What Six Flags has going for it is a solid dividend? A month ago, the yield was a bit frothy at over 9% and it’s come down a little, but still may be a little uncomfortable at over 8%. However, the company does not appear to be in any danger of not paying out the dividend. The stock also has an attractive P/E of 12. While that is not a very encouraging sign for future growth, investors tend to buy SIX stock for the dividend.
The current state of Cedar Fair
Cedar Fair meanwhile just delighted investors with a record year in terms of net revenues for both its full-year and fourth-quarter 2019 results. Net revenues were up 9%. Attendance at Cedar Fair’s parks increased 8%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 8% to $505 million.
By all accounts, it was a fantastic report which should keep the stock on its current trend. The stock has been relatively stable over the past five years. While that isn’t encouraging for growth investors, investors in FUN like those that buy SIX stock are looking for the dividend. Cedar Fair also delivers a healthy dividend and the company’s current yield is just under 7% (6.89%).
FUN stock is a little pricier than SIX stock. The P/E ratio is just over 21.
To merge or not to merge?
There has been a lot of speculation that the two companies might merge. Late in 2019, Cedar Fair rejected a $4 billion cash-and-stock offer with Six Flags. Six Flags has said they were not planning to counter the offer. The company did, however, leave the door open for a future deal
“We are always assessing opportunities for which there is a compelling rationale,” said Six Flags CEO Reid-Anderson during the company’s fiscal third-quarter 2019 earnings call. “Over the last few years, discussions have occurred with most regional players in the industry. Those discussions have taken place over many months, and in many cases, years.”
Which company is the better buy?
I’ll agree with some analysts that say Six Flags stock may be getting disproportionately punished for its international growth which won’t really add much to its bottom line. And the stock may have a greater upside since it is down at a 5-year low. Six Flags also just announced a multi-year partnership with the Kraft Heinz Company (NASDAQ:KHC) which will make Six Flags the exclusive provider of Kraft Heinz products. While it’s questionable how much revenue the company will gain from it, it’s positive news the company needs.
But right now, I give the nod to Cedar Fair. The company just posted an outstanding earnings report which, weather permitting, should allow the company to get the 2020 park season off to a great start.