Oppenheimer has adjusted its outlook on Six Flags (NYSE:SIX) Entertainment (NYSE: FUN), reducing the price target to $60 from the previous $67, but maintaining an Outperform rating on the company's stock.
The firm's analyst pointed to a significant drop in the stock's value, which has seen a roughly 26% decline over the last three months and about a 4% fall in the past month.
The revision reflects concerns over potential consumer spending slowdowns, unexpected increases in capital expenditures (CapEx) and operating expenses (OpEx), as well as high leverage ratios.
The analysis compared Six Flags' recent performance with its industry counterparts, noting that companies like PRKS, PLAY, and BOWL have outperformed FUN over the past month, with margins of approximately 110, 835, and 260 basis points, respectively. Despite this, the analyst believes that the current challenges are already reflected in the stock's valuation.
Regarding capital expenditures, the analyst expects that Six Flags will manage to keep these costs below 13% of revenues. This is based on the anticipation that while legacy Six Flags parks might see an increase in CapEx, this will be balanced by a reduction in expenditures at legacy FUN parks.
Operational expenses are projected to rise as Six Flags seeks to improve Net Promoter Scores (NPS), especially among season pass holders at legacy Six Flags parks. This would require additional staff and more operating days, according to the analyst's expectations.
Lastly, the firm acknowledged Six Flags' high leverage, approximately 4.2 times, but also noted the company's economic resilience. Consequently, the estimated EBITDA for 2024 and 2025 has been revised to $977 million and $1,090 million, down from the previous forecasts of $997 million and $1,155 million, respectively.
In other recent news, Six Flags Entertainment Corporation reported mixed results for the second quarter of 2024, generating $572 million in net revenues and welcoming 8.6 million guests, marking a rise from the previous year.
However, the Legacy Six Flags segment saw a decrease in attendance and revenues due to strategic decisions. The company has also completed its merger with Cedar Fair (NYSE:FUN), L.P., positioning it as a significant presence in the regional theme park industry.
Deutsche Bank adjusted its outlook on Six Flags, reducing the price target from $65.00 to $58.00, while maintaining a Buy rating. The firm suggests that the market sentiment towards Six Flags is generally negative, but it remains confident that Six Flags can meet the new target. Despite these developments, JPMorgan maintained its Underweight rating on Six Flags, citing concerns over elevated capital expenditure and potential pricing pressures.
InvestingPro Insights
Recent InvestingPro data provides additional context to Oppenheimer's analysis of Six Flags Entertainment (NYSE:FUN). The company's market cap stands at $3.94 billion, with a P/E ratio of 15.38, suggesting a relatively moderate valuation compared to historical norms. However, an InvestingPro Tip indicates that FUN is "trading at a high earnings multiple," which aligns with Oppenheimer's cautious stance on the stock's valuation.
The company's revenue growth of 5.11% over the last twelve months, coupled with a robust EBITDA growth of 14.88%, supports Oppenheimer's view on Six Flags' economic resilience. This is further reinforced by an InvestingPro Tip stating that "analysts anticipate sales growth in the current year."
Interestingly, while Oppenheimer lowered its price target to $60, InvestingPro data shows a fair value of $47.35 based on its proprietary calculations, suggesting potential overvaluation even at current levels. This discrepancy might explain the recent stock price decline noted in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Six Flags Entertainment, providing a deeper dive into the company's financial health and market position.
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