Cedar Fair: No FUN for Investors

Cedar Fair (FUN) is an operator and owner of amusement parks. The company operates in the United States and Canada. The company has been public since 1987.

I am bearish on FUN stock. (See Analysts’ Top Stocks on TipRanks)

Pandemic Damages

Cedar Fair owns and operates several of the most popular and largest theme parks in North America. The holdings include Cedar Point in Sandusky, Ohio, Knotts Berry Farm in Buena Park, California and Canada’s Wonderland in Ontario, Canada. Until recently, Cedar Fair has been a profitable endeavor, posting a net income since at least 2011.

During 2020 the company struggled mightily due to COVID-19. Parks were closed, then opened with severely reduced hours. Waterparks remained closed for much of the summer season. Through no fault of its own, the company was significantly damaged and has not recovered.

Cedar Fair is a seasonal business. The summer season provides the majority of revenue for the year. During 2019, more than 75% of revenues were posted in Q2 and Q3, encompassing April to September. Because of this, the pandemic came to North America at exactly the worst time for the company. The normally lucrative Q2 and Q3 only produced $94 million in revenue in 2020, down from over $1 billion in 2019.

In 2021, this has improved and Q3 even exceeded the revenue from Q3 2019. This is great news. Optimism must be tempered by the fact that new variants have rattled the populous and markets in recent days, however.

The omicron variant, first detected in South Africa, has alarmed health officials due to its transmissibility. It remains to be seen how bad this variant will be, however it highlights a major risk to Cedar Fair.

Valuation

Because of these risks, one would reasonably expect to receive a large discount when purchasing the stock. This is not the case. The stock price is 12% lower than at the beginning of 2020 coming in at over $48.58.

This is not a large discount. Further, because it has accumulated long-term debt, the enterprise value is 1% higher than it was before the pandemic.

Long-term debt now stands at nearly $3 billion. For reference, the company posted just $320 million in operating income in 2019, one of its most successful years.

Wall Street’s Take

Over on Wall Street, analysts give Cedar Fair a Strong Buy consensus rating. Four analysts have Buy ratings.

The average Cedar Fair price target of $66.25 implies 36.4% upside from the current price.

Cedar Fair Summary

Cedar Fair stands at ground zero for effects of the pandemic. Closures, reduced hours, and bad timing caused serious detrimental damage to the company and shareholders.

What’s worse, the pandemic appears to be resurging as the United States and Canada enter winter. The company was forced to issue debt to finance operations while revenues cratered, which has raised the enterprise value over pre-pandemic levels. At this time the risk-reward profile is not favorable to investors.

Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.