Here's Why You Should Steer Clear Six Flags (SIX) Stock Now
Six Flags Entertainment Corporation SIX performance continues to be hurt by elevated inflationary pressures and dismal in-park spending per capita. Also, an uncertain macroeconomic environment is a concern. Consequently, the company’s shares have declined 1.4% in the past six months against the industry’s rise of 6.6%.
Earnings estimates for 2023 and 2024 have been revised downward in the past 60 days by 40.8% and 16.6% to $1.25 and $2.11 per share, respectively. This depicts analysts’ concern regarding the stock’s growth potential.
Let’s discuss the factors likely to impact this Zacks Rank #5 (Strong Sell) company’s growth potential.
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Primary Concerns
Six Flags has been persistently shouldering increased expenses, which are detrimental to margins. During second-quarter 2023, SIX reported adjusted earnings per share (EPS) of 25 cents, down 63.8% year over year. In the reported quarter, the company witnessed a 69% year over year rise in selling, general, and administrative (SG&A) expenses, primarily due to an increase in the company's self-insurance reserve.
During the second quarter of 2023, the company incurred $38 million in expenses due to revising estimated liabilities for its self-insurance reserves. The expenses primarily relate to general liability claims and are recorded in SG&A. The adjustment was not a result of increased incidents but was driven by broader factors, primarily the escalation of claim expenses due to inflation. This encompasses higher costs associated with legal proceedings and settlements, partly attributable to a general trend of larger monetary awards from juries. This trend has been affecting many industries, resulting in elevated settlement amounts and increased uncertainty in the financial outcomes of claims.
For 2023, SIX anticipates cash operating costs to rise by approximately low to mid-single digits, driven by the challenges of inflationary pressures. Also, the company continues to invest in enhancing the guest experience and advertising. These cost hikes will be partly mitigated by the company's ongoing efforts in cost reduction.
Nonetheless, the leisure industry is cyclical, as worsening global economic conditions might dent Six Flags’ revenues and profits. Consumer demand for services is closely linked to the performance of the general economy and is also sensitive to business and personal discretionary spending levels.
The company's in-park spending per capita also dropped by 2% year-over-year in the reported quarter. This decline can be attributed to lower spending on parking, retail and flash passes, primarily due to a higher proportion of season pass attendance in the second quarter of 2023 than the previous year.
High debt is a significant roadblock for the company. SIX ended the second quarter with cash and cash equivalents of $51.6 million compared with $80.1 million in the previous quarter. Long-term debt was $2.18 billion, slightly down from $2.28 billion reported at reported in the previous quarter. The debt-to-capitalization ratio at the end of the second quarter of 2023 was 183.8%, which indicates the company’s difficulty in managing high debt levels.
Key Picks
Some better-ranked stocks from the Zacks Consumer Discretionary sector are:
Royal Caribbean Cruises Ltd. RCL currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 28.5%, on average. The stock has surged 107.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS suggests growth of 55.3% and 181.9%, respectively, from the year-ago period’s levels.
Hilton Worldwide Holdings Inc. HLT flaunts a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 12.5%, on average. The stock has gained 25.6% in the past year.
The Zacks Consensus Estimate for HLT’s 2023 sales and EPS suggests increases of 14.8% and 23.7%, respectively, from the year-ago period’s levels.
OneSpaWorld Holdings Limited OSW currently carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 42.6%, on average. The stock has gained 25.9% in the past year.
The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates growth of 44.5% and 117.9%, respectively, from the year-ago period’s levels.
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Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Six Flags Entertainment Corporation New (SIX) : Free Stock Analysis Report
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OneSpaWorld Holdings Limited (OSW) : Free Stock Analysis Report
