October will be an important month for amusement park stocks, according to KeyBanc Capital Markets, as attendance so far this year has been sluggish.
Attendance at parks operated by Cedar Fair, L.P. (NYSE:FUN), SeaWorld Entertainment, Inc. (NYSE:SEAS), and Six Flags Entertainment Corporation (NYSE:SIX) remains well below 2019 levels. This partly explains why the stocks have lagged the broader market in recent months. The latest projected attendance data shows that underperformance could continue.
KeyBanc’s outlook isn’t so sanguine. It lowered its Q3 attendance estimate to -4% year over year, from -2.5% prior.
In the third quarter, the firm projects Cedar Fair (FUN) will see a drop in attendance of 4% YoY — steeper than the expected -3.0%. In response, KeyBanc trimmed their revenue and EBITDA projections for Q3.
Attendance at SeaWorld (SEAS) could slip by 3.5% YoY, also steeper than the anticipated -2.7% YoY. Weakness can be explained by the hot weather and a hurricane in Florida, home of one of the company’s biggest parks. Analysts slightly lowered revenue and EBITDA forecasts.
KeyBanc sees Six Flags (SIX) reporting a 13% YoY surge in attendance, beating expectations of 12.7%. This could result in a small increase in revenue and EBITDA forecasts. But the bank remains concerned about the stock given data showing average customer on-site spending is down about 4.5% compared to a year ago.
Overall, the firm sees significant risks for the sector. Amusement parks do best in a strong economy. Analysts foresee the potential for a deteriorating macroeconomic environment. If a recession hits, many consumers will skip visits to their favorite roller coaster.
Bad weather is another risk. Unseasonably hot or cold weather reduces attendance. So does rain or natural disasters. KeyBanc analysts also noted that there are remote risks of pandemic-related park disruptions or shutdowns.
Despite the risks, there is some upside in the sector.
KeyBanc’s price target for Cedar (FUN) is $49, about 36% above the recent price. The potential for Six Flags (SIX) is also 36% based on the bank’s $31 price target. Because of uncertainty associated with the company’s outlook, KeyBanc doesn’t have a price target for SeaWorld (SEAS).
