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Six Flags Boosts Liquidity Outlook, Suspends Dividend Payouts

support@smarteranalyst.com (Ben Mahaney)

The world’s largest regional theme park company, Six Flags Entertainment (SIX), has announced preliminary 1Q20 revenues along with significant steps taken to both reduce expenses and boost the overall liquidity outlook.

Management expects 1Q20 revenues to be $25-30M lower than the year-ago period, or roughly $98-103M, but added that a sizable portion of the decline was offset by operating expense cuts when the parks closed. SIX also agreed with lenders to suspend the regular dividend until the end of 2021 or the termination of its additional $131 million credit facility.

With the timeline for park reopenings remaining unknown, management is reducing expenses and cash outflow by (1) eliminating all seasonal labor; (2) reducing employee pay by 25%; (3) suspending all marketing/advertising costs; and (4) eliminating $30-40M in non-labor operating costs. Lastly, $40-50M of capital projects this year are now deferred or eliminated.

Along with an increase in the company’s revolving credit facility, management now estimates the company has enough liquidity to cover cash needs through the start of the 2021 operating season.

“While park reopening timelines and post-opening attendance levels remain unknown (especially if held back by government restrictions), we believe these liquidity levels are well beyond what is feared by investors and priced into SIX shares at this point” commented B Riley FBR analyst Eric Wold.

He estimates parks will reopen in mid-June vs. the previous estimate of mid-May, with pent-up demand potentially driving solid trends as parks reopen.

However, while Wold is increasingly optimistic with the company’s liquidity position, he prefers “more visibility into an opening timeline before jumping off the sidelines.” As a result, the analyst maintains his hold rating on the stock but boosts his price target from $13.00 to $15.50 (8.5% upside potential).

Indeed, the overall consensus on SIX remains Hold, with 7 hold ratings published on the stock in the last three months. (See Six Flag’s stock analysis on TipRanks)

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