U.S. Markets closed

3 Reasons Why Citi Projects 28% Downside In SeaWorld Shares

Jayson Derrick

Despite SeaWorld Entertainment Inc (NYSE: SEAS) beating expectations in certain financial metrics in its May first-quarter earnings report, investors may be overlooking three notable risks, according to Citi. 

The Analyst

Citi's Jason Bazinet downgraded SeaWorld Entertainment from Neutral to Sell with a $15 price target.

The Thesis

SeaWorld reported flat year-over-year EBITDA in May, which came in better than the $23-million decline the Street was looking for, Bazinet said in the downgrade note.

The better-than-expected metric also resulted in a short squeeze, which helped boost the stock to its highest two-year forward multiple since its 2013 initial public offering at around 9.7x 2019E EV/EBITDA.

Yet the high stock multiple is unwarranted, as the Street is overlooking key risks, the analyst said:

  • Expectations that a stronger U.S. dollar will pressure international attendance.
  • Expectations for higher LIBOR interest rates that would increase the company's interest costs for its $550 million 2020 term loans and $1 billion in 2024 term loans.
  • New competition from "Star Wars" attractions in SeaWorld's key markets of Florida and California.

Citi's $15 price target implies downside of 28 percent from Monday's levels and is based on: 

  • A 7.0x fiscal 2019 EBITDA ($12 per share).
  • A $3 premium for the potential sale of Busch Gardens. 

Price Action

Shares of SeaWorld Entertainment were trading lower 6.71 percent premarket Tuesday at $19.60, which is below the stock's 52-week low of $20.73.

Related Links:

PETA Leverages Shareholder Power, Calls On SeaWorld To End All Animal Breeding

Beleaguered SeaWorld Has A 35% Return Opportunity, Analyst Says

Public domain photo via Wikimedia. 

Latest Ratings for SEAS

Date Firm Action From To
Jun 2018 Citigroup Downgrades Neutral Sell
Jun 2018 Stifel Nicolaus Maintains Buy Buy
May 2018 B. Riley FBR Maintains Neutral Neutral

View More Analyst Ratings for SEAS
View the Latest Analyst Ratings

See more from Benzinga

© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.