|Shares Out. (in M):||57||P/E||43.4x||0.0x|
|Market Cap (in $M):||3,550||P/FCF||43.4x||0.0x|
|Net Debt (in $M):||675||EBIT||222||0|
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$62.50/share, $3.5B mkt cap, $4.3B EV
Note P/E above uses price less NPV of NOL over real sustainable economic earnings (after stock comp, after long term tax rate). EBIT reflects EBITDA - Capex instead as mgmt is right that D&A>Capex sustainably.
Quick summary --- Decent business, but can never come close to justifying its valuation. Mgmt has a big “aspirational” target of Project $500m EBITDA – it’s a big IF whether they can hit this, but even if they do, SIX is ~2x overpriced with no secular growth going forward. I think investors confuse one-off profit growth/price optimization for a sustainable growth trajectory that deserves a multiple, confusing cash generated from NOL consumption with sustainable cash and are completely ignoring SIX’s huge stock comp and dilution packages. Mgmt promotes a $5.50 “cash” EPS in that Project $500 scenario, that really translates to ~$2 of economic earnings after you back out NOL benefits, stock comp, and a handful of other small items. Stock is signficantly levered and still >30x real economic EPS if the Project 500 “aspirational” plan is achieved, with little growth from there.
Quick History – overlevered, went into bankruptcy, came out in early 2010
So a mediocre business in my opinion. I find Project 500 questionable but not completely out of the question -- its fairly characterized as an “aspirational case:”. What I really take issue with is the valuation that seems 2x too high even if Project 500 is achieved.
|Mgmt's Cons. EBITDA||413||500|
|Minority interest in EBITDA||(29)||(34)|
|Mgmt's Adjusted EBITDA||385||465||<Mgmts metric|
|Mgmt's Free Cash Flow||220||265|
|Mgmt's Cash EPS||$4.041||$5.346||<Mgmts metric (though they see $5.50)|
|Pension Cash (none expensed)||(8)||(9)||($0.17)|
|Excess Minority Payment||(11)||(13)||($0.27)|
|Economic Cash Flow||144||185|
|Economic EPS w/ ST tax benefit||$2.645||$3.739||<Real earnings w/ temporary tax benefit|
|Capex $125m?||(20)||(14)||($0.28)||(Capex averaged $150m pre-bankruptcy)|
|Sustaining Cash EPS?||71||91|
|LT Economic Cash EPS||$1.300||$1.845||<Real long term earnings|
SIX became controlled by Dan Snyder & Red Zone in ’05 before seeking bankruptcy protection in June ’09. SIX emerged from bankrtupcy on 4/30/10 led by the prior CEO who was then fired and replaced by a new management team in August 2010 led by CEO James Reid-Anderson (ledDade Behring out of bankrtupcy to a Siemens acquisitions, terrific reputation), and COO Al Weber (prior CEO of Paramount Parks).
Over the past decade SIX has struggled with flat/declining revenue. EBITDA vacillated between $180-275m for the 7 years leading into the bankruptcy. The new CEO aims to turn this around with cost cutting, capex cutting and better pricing strategies.
New management has done a good job boosting EBITDA generation from the same assets as the old team. These actions are surely net value creative. A few easy long hanging fruit items have contributed quite a bit of easy cost savings –Park Aveheadquarters, excess advertising. However it is important to remember that these types of decisions can have some negative longer term impact on the core business. Because this is a destination trip, customers who show up at the gate and find higher than expected ticket prices will probably buy the ticket anyway, but might be less inclined to return. In the same way a customer might be less likely to return if lines are clogged with cheap season pass holders or if they are frustrated that rich kids with flash passes keep cutting their kids in the hourlong line for Kingda Ka. Eliminating capex on big headline rides, and cutting advertising budget should also have negative long term effects.
Importantly, these price initiatives don’t create a sustaining growth trajectory, they are just one-off price growth levers. Once optimal price is reached, sustaining growth is just inflation-type pricing, which doesn’t deserve much of a multiple. The question is how far above last year’s $350m EBITDA and $3.50 “cash” EPS (really $2.03 of sustaining cash EPS) should you apply an inflation-growth multiple.
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