Earnings 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.

On November 2, Cedar Fair announced their third quarter results for fiscal year 2016. Net revenues came in at $650M, resulting in earnings of $3.10.  Both of these numbers missed the estimates of $3.54 earnings on $656M in revenues.  Despite those misses, the stock has risen over 4% since the announcement, regardless of the political landscape we've faced with the US Elections taking place.  Despite missing expectations, the company announced that their revenues through the end of October (Q3 was through the end of September) hit record levels of $1.1B, a 3% increase over the same time period last year.  The board also approved a 4% increase to their quarterly distribution, effective in December.  This raises their annual distribution $3.42 or about 6% at the time of the announcement (5.6% now).  

I want to be cautious with the "missed expectations" portion of this as a large part of the miss was due to weather, which actually affects the performance of the parks.  That said, it's important to note that growth is slowing.  We're starting to see the company transform into a slow, but steady growth entity.  This would compare well with consumer package companies, except that Cedar Fair's dividend is much larger than most CPGs out there right now.  As a MLP, some of the company's growth is seen through the distribution as well.  Costs increased as anticipated by management, mostly due to higher minimum wage and merit increases.  I don't exactly want to poo-poo the quarter.  The company is doing well, is executing against their strategy, will hit their target $500M Adjusted EBITDA next year (they targeted 2018), and continue to see increased attendance and spend.  They're doing a good job of taking advantage of a general theme we're seeing among consumers to spend for experience.

As I look at the stock and its potential, I adjust for slowing growth along with a market that is preparing for higher interest rates.  Cedar Fair's 5.6% yield helps keep a strong floor under the stock, though it's not to say there isn't downside risk.  A stock price of $57 has the stock yielding 6%, so I think that's around the downside range.  Likewise, these stocks typically yield around 5% because of the MLP structure.  That limits the upside price to around $68.  From an earnings perspective, analysts are expecting about 4% growth next year.  They anticipate earnings of $3.46 this year and $3.59 next year.  I'm going to be a little more cautious and estimate earnings of $3.57, which is a little better than 3% growth.  With rates more likely to rise, I'm also going to be a little more cautious with the multiple people are willing to pay for this stock, placing it at 17.  This leaves me with a price target of $64.25.  This leaves the stock at a status of a 2, where you could consider buying some more, but I'd wait until around that 6% yield before buying any.

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.