Cedar Fair Entertainment

Cedar Fair Entertainment (FUN)

In a world of economic uncertainly, political unrest and elevated stress levels, consumers need a break. In times of strain we have found that they might turn to alcohol or tobacco. But based on results from Cedar Fair Entertainment, Americans might be looking to amusement parks and good ole’ fun times to either relieve pressure or maybe just enjoy the better quality of life and confidence they are feeling.

With the exception of California, winter is not usually the best time for outdoor amusement parks. But even in the thick of cold season, Cedar Fair’s park Cedar Point saw record attendance in 2011 that raised per-customer spending and out-of-park revenues 5.2 percent to $1.028 billion for 2011, generating a profit of $72.2 million.

Cedar Fair seems to be doing something right in an industry that might be seeing a turnaround. Its competitor Six Flags also reported record earnings in 2011. Could 2012 be the year of the fun-park?

Company Description
Cedar Fair is a publicly traded partnership that operates regional amusement parks in North America. They are one of the largest in the world with eleven amusement parks, six water parks, four hotels and a marina on the Great Lakes. Their parks are located in Ohio, California, North Carolina, Virginia / District of Columbia, Pennsylvania, Minnesota, Missouri, Michigan, and Toronto, Ontario giving them diverse geographic exposure. In 1997 they bought Knotts Berry Farm in California.

Looking at some of the other theme amusement parks like Universal, Disney and Six Flags, there seems to be a trend occurring. Even though the fourth quarter is generally the weakest for parks due to weather and stay-at-home holidays, the industry is seeing strength:

According to Comcast Corp, NBCUniversal theme park revs rose 4 percent during the final three months of 2011, propelled by higher per-guest spending at Universal Orlando and Universal Studios Hollywood.

Six Flags reported a loss, but noted that “overall guest attendance increased 16 percent to 3.6 million guests during the quarter, helping boost revenue.”

Bob Iger of Disney had this to say about traffic at the Disney Parks “Turning to Parks and Resorts. I'm very pleased with recent attendance and pricing trends. Disneyland Resort has seen strong results lately due in part to the strategic investment we made at Disney's California Adventure.”

Trends look to be improving for the industry and if Cedar can control costs and continue to execute their pricing, advertizing and ecommerce strategy successfully, this stock could see more growth in 2012.

Financial Profile
Cedar Fair is a small-cap ($1.59 billion) company that is trading at about 12.75 times forward (expectations for next quarter) earnings. This low valuation should help support Cedar’s stock price moving forward.

FUN became a Zacks Rank #1 Strong Buy on February 21st.

The amusement company as a whole reported a $72.2 million profit in FY2011, which equated to $1.29 a share. That was quite a jump from FY2010 when FUN posted a loss of $31.6 million, or 57 cents a share in 2010.

Cedar Fair reported Q4 revenues of $144.8 million and a loss of just 1 cent per share. Typically, the fourth quarter is the weakest for Cedar Fair, with losses usually in the millions. In the same period a year ago, the company had a $63.2 million loss, or $1.14 a share. They have the highest margins in the industry and stable diverse cash flows even in recessionary times.

Cedar Fair attributed the strong Q4 earnings to their Halloween Haunt events at its various parks.

Earnings Estimates
Cedar posted much higher than expected earnings last quarter. They noted that there hasn’t been a successful new park built in the US in the past 30 years, so the barriers to entry are low for competition which helps support their positive outlook. So much so, they are investing $90 million into their existing parks to improve consumers experience and keep them coming back for more.

Expectations are for FUN to lose 70 cents this quarter, but to generate 20 cents in profits next quarter and earn $2.26 per share this year (FY2012). Of the 4 analysts who cover FUN, the consensus is for the company to grow earnings by 75% in the current year (FY2012) and roughly 23% in FY2013.

In terms of the magnitude of analyst estimate trends, we are seeing short term (current and next quarter) and longer term (FY2012 and 2013) consensus estimates the same or higher than they were 90 days ago.

Cedar beat analysts’ expectations last quarter for the first time in a year. They have averaged a 7% earnings miss over the past year.

Market Performance & Technicals
For a stock that has missed expectations, Cedar has had some serious momentum over the past year as it more than doubled in value and momentum has picked up in the past month or so with a 33% rally from levels in early January.

Cedar Fair tends to be closely correlated and just about as volatile when compared to the broad market, with a Beta of 1.12.

FUN has maintained bullish strength above its 200-day moving average for the majority of the past year. FUN is now firmly above its 50- and 200-day moving averages of $24.37 and $21.05, respectively. It continues to rally even as markets are moving more sideways.

FUN has exceeded the S&P 500’s performance by over 41% in the past year and almost 11% just in the past 3 months. With the recent run-up into their report and beyond, they managed to return 12.5% more than the broad market over the past four weeks. With consumers apparently feeling a little better about their finances, FUN could see a nice jump in revenue for their peak seasons the spring, summer and fall.

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.