These 2 Theme Park Stocks Are Must-Own Holdings for Your Portfolio
If double-digit stock returns are a missing element in your investment portfolio right now, look no further than theme park stocks. We recommend you dig deeper into and Cedar Fair (FUN) - Get Report and Six Flags Entertainment (SIX) - Get Report , both of which promise big upside potential in a stock market that has been less than thrilling.
Trading at a reasonable enterprise value-to-EBITDA ratios of 11 and 14, respectively, Cedar Fair and Six Flags Entertainment are a perfect fit for income-generation and long-term capital appreciation. Let's look first at Six Flags.
1. Six Flags Entertainment
Six Flags Entertainment claims to be the world's largest regional theme park company, with $1.3 billion in revenue and 18 parks across the U.S., Mexico and Canada. The company boasts an operating history of 55 years with world-class roller coasters, themed rides, thrilling water parks and unique attractions.
After a few hiccups (read losses) during 2005-2011, Six Flags has delivered healthy profits and free cash flows of $200 million-$360 million annually in recent years.
Over the next five years, analysts projects Six Flags to clock average annual growth in earnings per share of nearly 13%.
Although there are questions about retail spending as the apparel segment receives a lower wallet share, people continue to spend on entertainment attractions and experiences. That makes entertainment a highly promising place for your money now..
Six Flags company has also a number of international expansion drives, such as its Dubai theme park, scheduled for opening in late 2019.
The average 12-month price target of analysts who cover Six Flags Entertainment is $65, which suggests the stock could gain 11% in the next year.
Six Flags' offers income-hunting investors a solid 4.0% dividend yield, higher than the category average of 3.5%. Investors can feel comfortable knowing that the company has six years of dividend growth and trailing 12-month dividends worth $243 million, which are nicely covered by the $350 million in free cash flow.
Trading at 14 times EV/EBITDA, the stock is clear value for money.
2. Cedar Fair
Theme park operator Cedar Fair is a solid alternative for long-term growth. Analysts are expected average annual earnings growth of 25% over the next five years, so this is definitely a stock to watch. And it already has a history of delivering for investors. Its five-year total return is 27.2%, vs. 12.8% for the leisure sector.
As one of the largest regional amusement-resort operators in the world, Cedar Fair owns and operates 11 amusement parks, three outdoor water parks, one indoor water park and five hotels.
The company has delivered stable earnings so far. It topped expectations with its first-quarter report after a strong performance from its only year-round theme park.
Cedar Fair now anticipates meeting its long-term goals of generating $500 million in adjusted earnings before interest, taxes, depreciation and amortization before the initial target date of 2018.
On average, analysts covering Cedar Fair have a 12-month price target of $66.50 on the stock, suggesting it can gain 14% in the next year. Plus, the 5.7% dividend yield and stupendous dividend growth (from $1.00 in 2011 to $3.08 in 2015) make it an incredible income play.
Cedar Fair is a clearly a smart buy that should fortify your portfolio.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
