In this piece, we used TipRanks’ Comparison Tool to compare Disney and Cedar Fair to see where Wall Street analysts stand. Theme park plays are under considerable pressure amid mounting economic woes. That said, shares are oversold, with Disney (NYSE:DIS) and Cedar Fair (NYSE:FUN) stocks likely ready to move on from their more than 50% haircuts.
With COVID-19 cases retreating rapidly and the end of the pandemic finally in grasp, the theme park powerhouses may finally have permission to rally higher. Still, lofty inflation and a looming recession have acted as another dreaded setback that could postpone the theme park boom to a later date.
Indeed, there are only so many years that one can delay cherished memories at Disneyland or Knott’s Berry Farm. As pandemic headwinds fade and recession headwinds take their place, foot traffic at theme parks could stay pretty muted. That said, don’t expect such traffic to remain at minimal levels like during pandemic-era lockdowns.
With much pent-up demand still out there, it’s discretionary experiences that may not be quick to erode in the face of what’s likely to be a fairly mild recession. In any case, shares of Disney and Cedar Fair remain in the gutter, down nearly 50% from their highs.
Two recessions in a three-year timespan are never ideal, but looking beyond the macro headwinds, the future of the theme park industry looks so much brighter. Many families have been denied experiences due to closures or economic turmoil. Some postponed experiences may end up being canceled altogether, given the gloomy circumstances. However, the odds of a post-recession boom seem far greater than a sluggish recovery.
At the end of the day, experiences matter more to millennial families than materialistic goods. With that, I expect theme parks to act less discretionary going into a recession year.
Walt Disney Company
When it comes to family-friendly experiences, it’s tough to top Disney. The iconic entertainment and media firm has evolved significantly since the pandemic struck. CEO Bob Chapek redirected the company to the best of his ability, with massive investments in streaming as theme park revenues fell off a cliff. Simply put, Chapek’s been stellar at averting a potential disaster caused by factors outside his firm’s control.
With the COVID-19 pandemic winding down, many families are itching to book their trip to Disneyland city. Accommodations are not cheap, but when it comes to such once-in-a-lifetime experiences, young millennial families have shown they’re willing to open up their pocketbooks.
The coming recession (which may have already arrived) will undoubtedly weigh on the abruptness of the theme park rebound. The recent third quarter saw impressive growth in parks, but such remarkable growth may be short-lived. In any case, estimates may still be a tad on the conservative side amid escalating recession fears.
Undoubtedly, analysts have been quick to lower guidance in anticipation of a global downturn. What they may be discounting, however, is the alleviation of pandemic headwinds. As the pandemic continues winding down, I don’t think a mild recession will be able to derail the impressive rally we’ve seen at parks. Pent-up demand may still be too strong, even as consumers exhaust their balance sheets.
Further, Disneyland’s wide moat will allow it to keep raising ticket prices amid ongoing inflation. Through the eyes of kids, there are no alternatives to Disneyland or Disney World.
At writing, shares of Disney trade at 2.2 times sales and 57.7 times trailing earnings. As one headwind turns into another, it’s hard to value the stock. If you’re like me and think the post-pandemic theme park recovery from COVID-19 will overpower looming recession headwinds, the stock may prove too cheap at these levels.
Further, there’s the streaming business, which could continue taking share, with hit titles like Andor continuing to keep viewers “stuck” on the platform amid elevated video-streaming churn rates.
What is the Price Target for DIS Stock?
Wall Street thinks the magic is still in Disney stock. Despite the recession headwinds, Disney commands a “Strong Buy” rating. The average DIS stock price target of $147.14 suggests 50.5% upside over the next year. That’s an impressive gain. Analysts are likely right on the money to stay confident in the house of mouse.
Cedar Fair
Cedar Fair is a far cheaper play than Disney. The stock has come a long way since the depths of the 2020 stock market crash. Still, shares face the same slate of headwinds as Disney’s parks. A looming recession could take a stride out of Cedar Fair’s step.
Regardless, I think no recession is comparable to the demand destruction that came with government-mandated shutdowns in the earlier innings of the COVID-19 pandemic. Simply put, Cedar Fair and its peers have survived one of the most hostile environments in their history.
In the latest quarter, Cedar Fair saw attendance bounce back in a meaningful way, with 7.8 million guests punching their tickets. Season pass sales were incredibly impressive, with more than 3 million pass sales in the books. Undoubtedly, the looming recession doesn’t seem to be preventing parkgoers from loosening their purse strings.
I believe the recent quarterly strength shows just how profound and durable pent-up demand is right now. Many parkgoers have delayed their trips for far too long, and it seems unlikely that hard times will deny them the fun they’ve been longing for during pandemic-era lockdowns.
Overshadowing Cedar Fair’s quarter was an earnings miss ($0.89 EPS versus the $1.49 consensus estimate) and a modest $509 million in revenue. Though the quarter may have been viewed as a flop, I view it as a mixed bag with a lot of bright spots that point to further resilience to come.
At writing, Cedar Fair stock trades at 1.3 times sales and 27.9 times trailing earnings. That’s a low cost to pay for a firm that may prove the doubters wrong as macro headwinds continue mounting.
Is Cedar Fair a Good Stock to Buy?
Wall Street remains upbeat on Cedar Fair, with a “Strong Buy” consensus rating based on six Buys and one Hold assigned in the past three months. The average FUN stock price target of $59.29 implies 45.3% upside potential.
Conclusion: Wall Street Expects More from Disney Stock
Wall Street is sticking with Disney and Cedar Fair as recession fears trump pandemic jitters. At this juncture, analysts expect a bit more gain to be had from Disney stock. I think investors can’t go wrong with either name at these valuations.
