Six Flags Says Projects in China Could Be Canceled

Six Flags' disclosure that its China projects might be canceled prompts a sharp drop in the share price and a number of Wall Street analysts cut their ratings on the stock.
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Six Flags Entertainment (SIX) - Get Report slumped on Friday after the theme-park developer disclosed that a payment default by a partner could prompt the company to end all its projects in China and that it expects a drop in fourth-quarter revenue.

The announcement prompted a number of Wall Street analysts to downgrade their ratings and target prices on the company.

At last check, Six Flags shares were down 18% at $36.06 and had traded as low as $35.28, down 19%. Bloomberg data showed that the stock touched its lowest intraday level since October 2014.

In a Securities and Exchange Commission filing, the Grand Prairie, Texas, company said that its partner in China, Riverside Investment Group, "continues to face severe challenges due to the macroeconomic environment and the declining real estate market in China."

Riverside has defaulted on payments to Six Flags, the filing said. While Six Flags "continues to work with Riverside and each of Riverside's governmental partners, the eventual outcome is unknown and could range from the continuation of one or more projects to the termination of all the Six Flags-branded projects in China," the filing said.

In the fourth quarter, the company will realize no revenue from the China international agreements. Six Flags expects to report charges of $10 million tied to its China agreements and certain unrelated litigation, according to the filing.

In addition, Six Flags said that its North American parks saw "lower attendance in the fourth quarter" than they did in the year-earlier quarter "due to softer-than-expected season-pass and membership sales, primarily during the holiday sales periods." 

As a result, the company expects fourth-quarter revenue to drop $8 million to $10 million from the year-earlier quarter's $269.5 million.

Wells Fargo cut its rating on the stock to equal weight from overweight and its target price to $42 from $49. 

Janney Montgomery Scott pared its rating on Six Flags to neutral from buy.

On Jan. 2, analyst Brett Andress at Keybanc cut his target to $52 from $57 and reiterated an overweight rating on the stock. He cited concerns about the China matters.

Wedbush on Jan. 6, had cut its recommendation on Six Flags to neutral from outperform and its price target to $44 from $55.

Bloomberg reported that analyst James Hardiman had said in a note that Six Flags' regional development partner was "struggling" to develop three amusement parks. And the analyst said Six Flags' dividend was at risk.

In the 2018 fourth quarter, Six Flags earned 93 cents a share on revenue of $269.5 million.