Insight into the Investment Outlook
Six Flags (NYSE:SIX) is currently positioned as an enticing small-cap prospect in the market. Despite drawing the ire of investors due to a fumbled customer transition, a sharp double-digit drop in attendance, and a 50% slash in its stock price over the last 24 months, the company stands on the cusp of a significant re-evaluation. This re-rating is imminent owing to fundamental catalysts such as an attendance recovery, stable pricing, the successful execution of a merger, and a noteworthy EBITDA upswing anticipated in 2024/2025. Monthly government data and balance sheet scrutiny, alongside management’s insights, align with this positive projection.
Backdrop to the Merger
In November, Cedar Fair (NYSE:FUN) and Six Flags, together overseeing 51 properties and generating $1 billion of LTM adjusted EBITDA, revealed their intention to merge. This move will equitably divide the economic value of the deal, with Cedar Fair shareholders seizing a slight majority of the NewCo equity, while SIX shareholders are set to receive the residual equity and a $1 special dividend.
As highlighted in SIX and FUN’s joint Form S-4 proxy, the merger outlines the “NewCo’s” aspiration to achieve $1.5 billion of EBITDA by 2026. This objective, validated by my own model and management’s guidance, underscores the impending reinvigoration of the company’s earning potential. The later segment expounds on my evaluation of various catalysts and the impact on the NewCo’s earnings clout.
Key Catalyst #1: Anticipated Surge in Attendance
Across the amusement park sector, attendance and per capita guest expenditure are pivotal revenue drivers. Six Flags and Cedar Fair’s revenue streams are fundamentally governed by the formula: (attendance × per capita guest spend = revenue).
While SIX chose to steer its focus, under CEO Selim Bassoul, towards augmenting per capita guest spend at the sacrifice of attendance, Cedar Fair adopted a more balanced approach, striving for modest growth in both metrics.
Regrettably for Six Flags, Selim’s strategy has largely faltered, leading to plummeting attendance and an inadequate rise in guest spend. However, there are discernible indicators that attendance is on the brink of an upturn, setting the stage for a robust 2024 performance.
Validation from Google Trends Data
Google Trends data reveals a 30% decline in peak search interest since Selim assumed leadership, mainly due to exorbitant prices deterring visitors from engaging with Six Flags. Conversely, consistent interest in the “amusement park near me” search term, currently matching pre-pandemic search frequency, signifies potential for SIX to captivate an eager customer base still interested in their experiences.
Reflecting on Six Flags’ trajectory, I perceive it as a case of “too much, too soon,” as the decision to elevate prices while enhancing the experience, rather than first improving the customer experience and then revising prices, backfired. Citing content from a Reddit forum, where members expressed discontent over escalating prices without a parallel enhancement in quality, reinforces this observation.
Despite this, ongoing searches for the park and impassioned conversations on the r/rollercoasters subreddit corroborate that people are keen on Six Flags; they just feel short-changed over the past year.
So, why am I optimistic about an attendance recovery? There are four compelling reasons.
Reason #1: Quality is Gaining Ground on Price
Considering that Six Flags currently operates at a yearly capex rate exceeding $165 million, compared