Earnings Analysis: Cedar Fair (FUN)

Back on November 2, Cedar Fair announced the results of their third quarter fiscal 2017 earnings results.  Results were a little mixed as they missed on the top line slightly, but provided a nice beat against earnings expectations.  EBITDA guidance confirmed what was already expected last quarter, with the company decidedly unable to meet its $500M target a year early.  Despite this, the board decided to increase its annual distribution (remember, this is an MLP, not a regular stock with a dividend) by 4%.  That sets the payout at $3.56, or approximately 5.27% as of today's price.  

Revenues came in at $652.69M compared to estimates of $652.97M, which were revised down during the quarter.  Despite this, earnings beat expectations of $3.24 by eighteen cents, showing strong cost and expense discipline.  Despite management's desire to avoid using it as an excuse, weather clearly was a factor prior, considering how Hurricane Harvey rolled through the Midwest and East coast when it was done in Houston and Hurricane Irma went up some of the eastern seaboard as well.  This kept visitation and spending down a little more than typically anticipated, yet the company still had record revenues, attendance, and spend.  It was simply that the growth was smaller than expected.  Spend per attendee was up about 1%, with food purchases leading the way while admissions were down slightly due to increased season pass usage.  While season passes hurt admissions some, Cedar Fair is seeing increased visitation as the experience of their rides continue to attract patrons.  And non-pass attendance was still up 3%.  Weather after Labor Day normalized and crowds have been strong during the Halloween season, providing positive outlooks for the fourth quarter.  We are now entering Winterfest season and more parks across the country will be hosting events than before.  Turnout is expected to be strong and the company is expecting to see benefits to its fourth quarter results, which has had a history of having negative earnings.

The stock is up a little over 7% since the results.  Why?  Well, I believe it's because things aren't any worse than projected when results were discussed last quarter.  Weather is a known factor to a company like this and there is little that can be done.  The company has been able to demonstrate they can navigate the weather as best as possible and the rest is outside their own control.  Add into this an outlook for 2018 which includes the introduction of 4 new attractions across some of their most popular parks and you have a strong base to draw continued patronage to take part in the experiences provided.  On a personal basis, while weather is unpredictable, I feel it's somewhat unlikely to see impact as strong as this year too.  The new rides is likely to be a strong catalyst for next year as well.  Based on this quarter's results, I'm increasing my earnings estimates for 2018 to $3.55.  Given the company's outperformance compared to competing companies (Six Flags) and lower valuation, I feel a forward earnings multiple of 21 is fair.  This increases my 2018 price target to $74.50.  As such, I'm also upgrading the stock to a 1 given current valuation.

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.

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.