Earnings Analysis: Cedar Fair (FUN)

Notes:
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 Wednesday, Cedar Fair announced second quarter 2016 results and discussed them on their conference call.  They reported earnings of $1.03 and revenues of $388M, both of which were misses compared to analyst estimates of $1.07 and $390M respectively.  Despite the miss, the stock has actually climbed slightly since the announcement.

The good news is that the company saw increased traffic and increased per capita spend inside and outside the parks.  This helps reinforce the concept that the consumer is willing to spend and that they enjoy experiences.  Cedar Fair has also been making a point to invest in that experience, which appears to be paying off.  In addition to this, the management team hinted at additional expansion opportunities for their seasonal parks, introducing a winter wonderland-like theme similarly to the Halloween theme that has been serving them so well at many of these parks.  They also hinted at additional resorts.  This creates future opportunities for increased sales, helping mitigate the quarters where they don't have a lot of business going on.  Management continued to stress the word "confident" (they said it so many times that I'm confident I don't want to hear it again for a few days), stating they'll have no problem meeting their goal of $500M in EBITDA before their target of 2018 based on the revenues they're making and the trends they're seeing in the business.

The not-so-great to bad news is that the growth wasn't exactly terribly strong at 2% core-constant growth rate.  It needs to be considered that this business is very uneven regarding quarter to quarter growth and performance, though.  Approximately 40% of their revenues still exists, with about 85% of that coming in the third quarter.  Other things that are a little bit of a concern to me is their use of "adjusted EBITDA" rather than strict EBITDA in the conference call.  I'm pretty sure this has been standard procedure for the company, but it's a little concerning because "adjusted" allows them to tweak numbers as they see fit, rather than following a GAAP standard.  Another reason this bothers me just a little is because you can see that they had slightly lower EBITDA this quarter compared to a year ago.  This makes the growth concept above a little harder to swallow, though investment into the business can have an impact on this.  Not so great was the fact that a major heat wave caused for decreased traffic in the second half of July.  July and August are the key months for business, so, while an expected part of the business and business model, it's unfortunate to hear about the reduced traffic.  That said, July was still their second strongest results for the month of July, so impacts shouldn't have been too strong.

In all, I don't think this changes things too much.  These numbers fall in line with where I've expected the company perform and continues to show some deceleration in earnings per share, so there is less willingness to pay up for it.  You also have to keep in mind this doesn't perform as a normal stock, with profits also being paid to shareholders through distributions.  I maintain my rating of a 2 and the target price of $62 for 2016.  As we look to 2017, I'm expecting earnings to grow about 20% to $3.36 and maintain my multiple of 22.  This would create a 2017 price target at about $74.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.