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Bear of the Day: Cedar Fair (FUN)

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Kevin Cook
·4 min read
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Cedar Fair (FUN) is an amusement parks management company that owns five venues, including Cedar Point, Knott’s Berry Farm, Dorney Park & Wildwater Kingdom, Vallyefair and Worlds of Fun/Oceans of Fun.


The company also owns and operates four hotel facilities, as well as the Cedar Point Marina, one of the largest full-service marinas on the Great Lakes.


My colleague Jeremy Mullin wrote about FUN as the Bear of the Day in early April and here's what he had to say...


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.


At the time, sales and profits were already plummeting. And they just took another plunge after earnings in early August.


Quarterly Results on August 5


Earnings per share decreased approximately 300% over the past year to ($2.35), which missed the estimate of ($2.23).


Revenue of $6.586 million declined by 98.49% year over year, which missed the estimate of $32.9M.


Analyst reactions to the quarter and outlook were grim, with 2020 revenues expected to decline 88% from $1.47 billion to just $175 million.


The September quarter, traditionally the strongest seasonally, is projected to see an 88.5% drop in sales from $714.5 million last year to just $82.2M.


The bottom line estimate revisions -- the nuts and bolts of the Zacks Rank -- were crushed from EPS of ($4.81) to ($10.15) for this year.


And next year's EPS projections were also thrown into negative territory with the Zacks Consensus moving from a profit of $0.04 per share to ($2.19).


While many restaurants and hotels are suffering, some have managed to adapt with new food delivery, entertainment, and leisure options that can observe social distancing requirements and preferences.


It's hard to see those options for amusement parks which thrive on visitors entering the facility and engaging in the festive community and market atmosphere of the parks.  


Crucial Analyst Notes


A downgrade from Janney Montgomery Scott on July 9 highlighted what investors have come to count on in terms of consistent cash flow from amusement park operators.


Analyst Tyler Batory downgraded Cedar Fair to Neutral from Buy with a $29 fair value estimate, voicing concern that he believes the stock has become "the consensus long in the space." Batory noted that the company is heavily reliant on two parks -- Knott's and Cedar Point -- for EBITDA and the latter is a difficult day trip for many people. He also believes the company is unlikely to reinstate the dividend until 2022, which is a negative for a stock where distribution is a key part of the investment thesis.


The impact of the pandemic on many leisure, dining, travel, and entertainment businesses has been devastating. People who have built their lives around these industries are suffering and it brings me no joy to highlight the pain of this sales and earnings destruction.


I would much prefer that Cedar Fair and its operations see a turn-around in their business outlook and profitability. We can only hope that this happens into next year. The Zacks Rank will let us know as it signals when earnings estimates stop going down and start heading back up.


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