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Bear Of The Day: Six Flags (SIX)

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Six Flags (SIX - Free Report) has lost over 65% of its value in the past month of trading, and it seems like there is no end to its shareholder devastation. The coronavirus has infected the theme parks’ public perception and sent these already weakening shares into a downward free fall. Yesterday alone, the stock plummeted 22%, with the past 5-days of trading pulling this stock down north of 33%. Analysts are increasingly pessimistic about the long-term potential of these shares and have pushed this stock into a Zacks Rank #5 (Strong Sell).

Systemic Issues

SIX was downgraded across the board following its most recent earnings report on February 20th. The theme park conglomerate missed big on EPS estimates, lowered its 2020 EBITDA guidance, and cut its dividend by 70%. These are all massive red flags for any corporation. This was even just before the coronavirus global transmission explosion. The firm is facing stalled to declining organic growth as well as sizable operating cost headwinds associated with higher wages and park upgrades.

A dividend cut is another massive red flag for any corporation, as it illustrates that the firm’s quarterly cash-flows are drying up. The firm also has an unsustainable amount of debt of the books with an outrageous debt-to-equity of 3.58, which is tremendously concerning considering the falling cash-flows.

All these systemic issues were present before the coronavirus took center stage in the market. This new pandemic may have put the nails in the coffin for Six Flags, potentially sending it into a second bankruptcy.

Bankruptcy Déjà Vu

Six Flags was forced to file for chapter 11 bankruptcy in 2009 because of its excessive leverage going into the financial crisis. The parks weren’t able to sustain demand, and cash-flows were unable to match debt obligations. The company was handed over to bondholders who recapitalized the company and brought them out of the ashes.

Today the theme park giant has amassed almost as much debt as its pre-bankruptcy levels. Six Flags is operating quarter to quarter, just hoping that they will have enough income to cover the massive interest expense, which made up 63% of last year’s interest expense. The coronavirus scare could be the catalyst of a second bankruptcy, and this time it could be a complete liquidation of assets (chapter 7 bankruptcy).

Coronavirus Impact

The coronavirus has unquestionably hampered admissions at Six Flag’s parks with people wanting to avoid large crowds and seedy environments. The further this disease spreads, the lower Six Flag’s attendance levels will be until they are inevitably forced to close some of their parks.

The coronavirus could be the catalyst that sends this over-leveraged company right back into bankruptcy.

Take Away

If you have not already dumped your shares of this stock, I suggest you do so. This is a toxic asset that may find its share price falling to zero if the coronavirus is not controlled efficiently. A fiscal stimulus plan to subsidize losses from tourist attractions like Six Flags could be the companies saving grace, but based on current information available, I would not touch these shares.

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