Stock Analysis: Cedar Fair (FUN)

Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Last week Cedar Fair announced their first quarter financial results.  Earnings missed expectations, coming in at $-1.50 compared to the estimates of $-1.23.  Meanwhile, revenues beat with results of $47M compared to expectations of $42M.  While no real annual guidance was provided, management did say things are still on track to meet their goals on a long-term basis.  In all, this is a meaningless quarter for the company, because it only produces at most 5% of the company's full year revenues due to the fact that the majority of their parks are closed over this time of year.  Quarters 2 and 3 will be key as this is the peak season.

Earnings missed mostly due to one-time charges that were made as well as some additional investments put into parks to continue to grow customer interaction, satisfaction, and add new thrill.  There are a couple new rides starting to get phased in, including a new record breaking roller coaster.  This is just the start of that investment phase, which will likely take a few years to roll out on a wider scale.  With the revenues being so low, I feel that is the reason why the charges looked to have more impact than they probably did in reality.  The company plans to continue to grow EBITDA (key comparison measurement for this kind of company with high levels of capital investment) at a 4% compound annual growth rate through 2018.  This should result in continued growth in profits and earnings while the company currently sports a dividend yield that's very juicy - at over 5.2%.  These factors of yield and growth are what drew me to the stock to begin with.  With interest rates rising, at least for the time being, the stock has been getting hit.  However, this is nothing more than a sale for the stock.  These yield levels are completely sustainable and will provide a strong floor from going a lot lower.  Keep in mind, though, that the stock has been in the 40s in the last year and nothing is saying it can't happen again due to market stupidity.

The biggest concern I saw was revenue impacts at its Californian parks due to drought related attendance drops - especially at its water parks.  After an e-mail with investor relations, they assured me they're working with local governments and are running mostly on closed-circuit facilities - where they treat and re-use water constantly to minimize impact of water consumption.  I believe there are still risks here, but I'm not as concerned as I once was.  Price increases are being accepted without issue at this time, but a change in that would also hurt on-going growth.  Other risks are related to economic and weather-related impacts.  

Analyst consensus for earnings on the year is $2.94.  This is nearly 50% growth from last year's $1.95 results.  However, longer-term growth is anticipated to be lower with an overall 5 year annual growth rate set at 14%.  The stock is currently trading at 19 times 2015 earnings, but with the given growth rates, I think a multiple of 22 is quite fair, if not yet a bargain.  As such, I'm going to stick with the estimate of $2.94 earnings while I work at finding better numbers for myself and provide a 2015 price target of $64.50.  That's 15% upside to the current price and I see legitimate down side risk of 10%.  I don't think it'll happen, but should the market nose dive, it's possible we see that or more, but that will not be a reflection on the stock providing this story stays the same.  Given these pieces of information, I rank the stock a 1.