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Bear of the Day: Six Flags Entertainment (SIX)

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Six Flags Entertainment (SIX - Free Report)  is a Zacks Rank #5 (Strong Sell) that owns and operates regional parks. The company runs parks comprised of theme, water attractions, concerts, shows, restaurants, game ventures and retail outlets. Six Flags is headquartered in Grand Prairie, Texas and operates 26 parks in the United States and Mexico.

Stock Plunging

When you see a chart like Six Flags you might think it’s a buying opportunity. The stock has fallen from $59 to $25 in the last six months. This fall of over 50% comes for a variety of reasons, but mainly its been the lack of performance on earnings.

Earnings a Disaster

The company has missed on EPS for three straight quarters. In addition, the misses seem to get worse and worse, with the last quarter coming in at a 100% miss. This poor performance has led the company to cut its dividend yield and on top of that, the CFO announced retirement. Those are typically red flags.

The company says it is facing challenges related to its base business. They are seeing soft organic revenue trends and increasing costs due to minimum and market wages. It seems as if people aren’t going to parks and it becoming more expensive to run them. Two negative catalysts for this business.

Estimates are plunging, because of the recent quarter. While this has been reflected in the stock, there might be a much bigger mess as we head into summer.

Coronavirus

Most experts think the Coronavirus will subside come summer. However, even if it does, a stigma about going to public places might remain. Meaning if the general public starts to fear going out, it might take some time before they start talking the family to theme parks.

This could put some serious strain on the business. If the virus maintains into the spring, investors will likely sell first and ask questions later.

In Summary

Six Flags is a fun place to go and has been for years. However, there is a lot of evidence that the business will continue to struggle going into the end of the year. Even with the stock price falling 50%, that dividend cut will keep investors away. Toss in the Corona risk, this is one to avoid.

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