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.

Last Wednesday, Cedar Fair announced fourth quarter and fiscal 2016 results.  Earnings appeared disastrous, with a loss of $0.12, which was fourteen cents below expectations.  On the flip side, net revenues came in at an astonishing $192M which handily beat expectations of $182.64M by 5%.  Guidance also continued with the narrative we've been hearing with the company expecting to surpass the $500M EBITDA threshold this year.  Year end EPS ended up at $3.14, which was significantly higher than I estimated at this time last year.  In the conference call, we heard a number of good results from management.  They saw an increase in attendance - despite weather, increased spend per customer, and an increase in revenues from their assets outside of the parks (think hotels, resorts, etc).  Price increases were applied and they saw no struggle in customers accepting it.  Finally, people continue to take advantage of pre-ordering for both park entry and food options.  This saves them a little money, but gives the management team a clearer and clearer picture of their cash flows.  Speaking of cash flows, those have been strong and continue to appear that way.  Management stated they're quite comfortable with their flows to manage debt and distribution payments, which means they shouldn't need to release more equity to cover costs.  In fact, costs aren't expected to grow nearly as much this year (4%) as they did last year because management doesn't expect to see as much in terms of wage increases.  The distribution payment is $3.44 per year, which is a yield of 5.17% as of this weekend's close price.  Healthy enough to limit impact caused by rate increases at this time.

Looking at the stock itself, I maintain my view that this is buyable on a pullback - especially if it reaches a yield of 5.5% (around 62.50).  I am also expecting the company to hit an EBITDA target of around $505M on the year.  Based on the information I've seen, I continue to believe the company will earn around $3.57 this year.  That puts the current price at a little under 19 times my estimate for earnings.  When earnings are expected to grow by 13.7% I feel a multiple of 20 is fair when looking at price targets for the next year.  My 2017 price target is $71.50.  My early estimates for 2018 are EPS of $3.93 and a price target of $78.

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.