Wedbush Steps Out Of Six Flags Line, Says Cedar Fair Results Signal Sector Weakness

Last week, Cedar Point amusement park parent company Cedar Fair, L.P. FUN reported year-over-year declines in revenue and attendance through the July 4 holiday weekend. The read-through is negative for Six Flags Entertainment Corp SIX, according to Wedbush.

The Rating

Analyst James Hardiman downgraded Six Flags from Outperform to Neutral and cut the price target from $76 to $70.

The Thesis

By Wedbush’s assessment, Cedar Fair’s weakness was not attributable to weather and could have simply been a product of more fundamental industry headwinds.

“We could be overestimating the trajectory of core attendance independent of weather, and the disappointing year of 2017 could be getting off to a similarly weak start in 2018,” Hardiman said in a Friday note. (See the analyst's track record here.) 

At the same time, early analysis suggests weather did hurt Six Flags, which trades at a premium to peers and tends to “trade quite poorly” around this time of the year, the analyst said. 

“Hence, while there is a lot to like about the company’s various growth initiatives, we are taking a step back for now until we can get more comfortable with the trajectory of the core park business." 

Hardiman forecast a 2-percent increase in attendance and revenue for the second quarter and cut his estimate for adjusted earnings before interest, tax, depreciation and amortization from $168 million to $164 million.

“We would hope that the FUN news is a company-isolated issue, but the premium valuation afforded SIX shares does not appear to be factoring in much risk that it is not." 

Price Action

Six Flags shares were down 2.83 percent at $69 at the time of publication Friday morning. 

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