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Bear of the Day: Cedar Fair (FUN)

Jeremy Mullin

Cedar Fair (FUN) is a Zacks Rank #5 (Strong Sell) that owns five amusement parks. Among them are Cedar Point, Knott’s Berry Farm, Dorney Park & Wildwater Kingdom, Vallyefair and Worlds of Fun/Oceans of Fun.

A combination of bad earnings running into a season of lockdowns make a recipe for disaster for this company. While lockdowns might not last throughout the summer, the stigma of social distancing will likely lead to extreme pressure on business operations.

Stock Crashes

There are a handful of stocks that have ugly charts, but FUN is one of the worst. The stock started the year around the $55 level, but took a nose dive after a bad earnings report in February. After bottoming out at $13, we saw a huge bounce to $30, but now the stock under trading at the $16 level. This is a drop off over 70% already on the year.

Q4 Earnings

The issues started before the lockdowns when the company reported it Q4 earnings. The company saw a 56% EPS miss after a large miss on revenues. This was the fourth miss in the last eight quarters, but this one was big. It caused selling in the stock that carried into the COVID dominated month of March.

 

I wrote the following about Six Flags a few weeks ago and the same issues apply to FUN:

The company says it is facing challenges related to its base business. They are seeing soft organic revenue trends and increasing costs due to minimum and market wages. It seems as if people aren’t going to parks and it becoming more expensive to run them. Two negative catalysts for this business.

This is forcing estimates lower. For the current year, we have seen estimates fall from $3.24 to $1.43 over the last month. This is a fall of 56%, compared to next years drop (when things should improve) of 17%.

COVID-19 and Lockdowns

While things could improve, the COVID lockdowns will seal the fate for FUN if they go on too long. The company has a lot of debt and not much cash on hand. A prolonged lockdown into the busy summer months could really put pressure on the business.

In Summary

You can’t buy this stock until we know when the economy will open back up. Until we get some clarity on the virus and the timeframe of when we can get back to business, stocks like FUN must be avoided.

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