Bear of the Day: SeaWorld Entertainment (SEAS)

Despite a rebound in the U.S. economy, many leisure companies have seen their share prices stay flat on a YTD basis, as higher gas prices and cold weather have prevented many from spending on discretionary items or vacations. Those in the theme park industry have been especially impacted by this trend, as companies like Cedar Fair (FUN) and Six Flags (SIX) are flat to lower in 2014, and are well below the market’s gains this year.

Yet while these companies are flat, SeaWorld Entertainment (SEAS) is truly having a year to forget, largely thanks to its most recent earnings report, and the impact of an ongoing public relations issue. In fact, the stock is down over 30% YTD, largely thanks to a recent earnings miss which sent shares of SEAS plunging to new depths in August trading.

SEAS in Focus

SeaWorld Entertainment is an operator of theme parks across the country, with its SeaWorld branded parks located in Orlando, San Antonito, and San Diego. The company also owns a variety of other parks as well though, including water parks and both of the Busch Gardens theme parks too.

However, the real focus of the company as of late has been on its struggling SeaWorld brand due to public relation problems stemming from its treatment of Orca (Killer) Whales. Many believe that the current habitats are insufficient for animals of the Orca Whales’ size and that even SeaWorld’s expansion plans for their areas will not make much of a difference.

This issue really came to light thanks to a recent documentary, Blackfish, which painted SEAS’ treatment of Killer Whales in an extremely poor light. The backlash from this film caused many businesses and musical acts to end their agreements with SeaWorld, while possible government action could be taken against SeaWorld due to the documentary as well.

If this issue had hit a minor exhibit, it is possible SEAS would have just removed or discontinued it before more controversy could arise. However, since the Killer Whales are arguably SeaWorld’s flagship attraction, the company is in a bit of a quandary to say the least.

Recent Earnings

This problem came out in force in the company’s most recent earnings report as the company missed earnings by 28%, posting EPS of just 43 cents compared to an estimate of 60 cents per share. This is actually the second straight miss for the stock, and given the ongoing woes, we could easily see three misses in a row.

This is especially true given how far analyst estimates have gone down in recent weeks, showing how little those who are focused on the stock believe in SEAS near term outlook. For example, in the past 30 days for the current quarter consensus, estimates have fallen from $1.45/share to just $1.13/share, while the current year estimate has fallen from $1.41/share to just $0.83/share today.

Clearly, it could be a very rough time for SEAS, and especially if more Killer Whale troubles hit their bottom line. Current estimates have earnings contracting by 27.7% year-over-year so more pain could definitely be ahead for this embattled company, which is why, unsurprisingly, we have assigned a Zacks Rank #5 (Strong Sell) to this troubled stock.

Other Picks

If you are looking to stay in the leisure industry, there are few solid picks thanks to the weak industry rank of the leisure and recreational services sector. There is one top ranked company in the space though, Royal Caribbean Cruises (RCL).

This company is just coming off a strong earnings beat, while rising earnings estimates are pushing growth rate projections to 45% this full fiscal year. So if you are worried about SEAS, consider switching from that theme park operator over to the cruise line world, as Royal Caribbean could be poised to outperform SEAS in the near term.

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