After forced closures due to COVID-19 and a new strategy in place, we ask if Cedar Fair Entertainment is a good investment right now?
Cedar Fair Entertainment (NYSE: FUN) is an amusement park, water park, and immersive entertainment operator with 16 locations across North America. The company was founded in 1983 in Ohio and has a mission ‘to make people happy”. Nevertheless, after a challenging year due to COVID-19, is Cedar Fair a good investment?
The bull case for Cedar Fair Entertainment:
Cedar Fair is structured as a master limited partnership that enables it to pay out most of its earnings to owners without paying federal and income tax first. Cedar Fair has rewarded its shareholders since going public in 1987, growing at a compound annual growth rate of 15%.
Cedar Fair is led by CEO Richard Zimmensen, who was appointed in 2018. Zimmensen has an 85% approval rating on Glassdoor, with the company scoring an overall 4 out of 5 stars which is a positive indication of the company culture. It also has an experienced management team taking, for example, former CEO and Disney executive Matthew Ouimet, who remains on the board of directors.
Before the pandemic, the company was firing on all cylinders with record revenue and attendance of $1.47 billion and 27.9 million visitors, respectively, in 2019. Although revenue declined in the last quarter its cash burn was better than expected. Management forecast that it has sufficient liquidity of $631 million to meet any of its obligations at least into Q2 2022, even with further restrictions.
Zimmerman has stated that due to the challenges over the last year. The company has reassessed its business to drive long-term growth and profitability with increased efficiencies and revenue enhancement. This strategy will be implemented over the next 6-12 months but may take 2-3 years to realize. If management can execute on its new strategy, the business may emerge in better shape than before the pandemic and provide an opportunity for investors.
Cedar Fairs is also expecting a strong second half of 2021 due to “robust pent-up demand”, and the early indications have been positive. It has also seen strong ticket sales for both its season passes and one-day tickets. It also continues to invest in the business, with a further $100 million to be spent this year.
Cedar Fair Earnings: What To Expect
The bear case for Cedar Fair Investment:
Similar to other amusement parks, its revenue is seasonal, with the majority of it being made in 130-140 days of the year. COVID-19 remains a serious concern and consideration for investors as more restrictions could prove costly. Cedar Fair also faces competition from other parks, such as Disney’s Disneyland. Unlike Disney, its business solely revolves around entertainment parks and cannot rely on other segments to generate revenue.
Due to the nature of amusement parks, there are high fixed costs, and in Q1, 2021, the company reported a net loss of $110 million. Even as the parks re-open, the labor shortage could also prove to be a headwind. Cedar Fair will also have to see a surge in footfall as revenue declined significantly to $10 million compared to $54 million the year prior. This was primarily due to park closures brought on by the pandemic, but the extension of season passes from 2020 could also.
So, should I buy Cedar Fair Entertainment stock?:
Although it is looking likely that the company will survive due to its liquidity and track record in the past, investors should be wary. The company is struggling, and its new strategy will take time, and investors should look for signs management is executing. Furthermore, the stock has already recovered significantly from its lows.
Quickfire round:
Where is Cedar Fair headquartered?
Cedar Fair is headquartered in Sandusky, Ohio.
Does Cedar Fair pay a dividend?
No, Cedar Fair does not currently pay a dividend.
What is Cedar Fair’s best park?
Cedar Point in Ohio is considered its flagship store.
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