It seems that many of the big Wall Street analysts are backing off from investing in regional theme park chain stocks so far this summer. In an article published by Barron’s on 8 July, one such analyst has now lowered his price target for SeaWorld Entertainment (SEAS) from $62 down to $52. He also lowered his target for Cedar Fair (FUN) from $67 to $55.
This could explain why Cedar Fair opted to release some early performance data earlier this month. These figures demonstrate a stronger performance this year through to the July 4th weekend, compared to how it performed during a similar time frame in 2019, prior to the COVID-19 pandemic.
The same analyst’s performance ratings on Six Flags Entertainment‘s (SIX) target price, however, dropped from $41 all the way down to $26. This is happening despite the early predictions and performance reports claiming that the theme park industry was expected to thrive this year. After all, prior indicators claimed that there was a huge pent-up demand for the product amongst the public.
Yet early reports from a number of theme parks this summer have painted a different picture. Attendance seems to be lacking at many theme parks thus far, despite favourable weather conditions throughout most areas during June.
According to the Barrons’ report, the decline in attendance seems to have been worse for Six Flags parks. That is a cause for concern as we are essentially at the halfway point in the market’s busy summer season.
What is happening at Six Flags?
Analyst James Hardiman says:
“While we continue to like the theme park industry’s ability to mitigate losses even in the event of a recession, we are beginning to see signs of weakness across the industry, with the month of June particularly problematic”.
It is also worth mentioning that the current strategy of Six Flags’ current CEO, Selim Bassoul, is of concern. The chain confirmed in its last quarterly report that it was looking to see attendance drop in exchange for generating higher revenue per guest through price increases. As analysts’ sources are reporting declining visitation trends, they are keeping a critical eye on Six Flags properties right now.
Currently, Six Flags isn’t set to release its Q2 2022 performance report until August 11 2022. This will at least show that either the current strategy is working as intended, or that there is positive traction. On the other hand, it could also show that those strategies have backfired on Bassoul and caused too much disruption for the chain.
Possible reasons for declining theme park stocks
Americans are becoming more sensitive to price increases right now, amid the barrage of news reports about inflation, gas prices and the threat of a potential recession. Many families will be feeling the crunch due to the higher costs of necessities like gas and food.
While America has long enjoyed cheaper prices for gas than many other nations in the world, the fact that price per gallon is currently about double what it was 18 months ago. Of course, gas prices can fluctuate greatly from state to state. In my region in the South-East US, gas prices have been floating around $4.59 a gallon for the past few months. One year ago, the average in July 2021 was $2.90 and it was even lower (in the $2.30-range) back in January 2021.
With that in mind, a consumer declining to renew a season pass to their local theme park would definitely seem to be one of the first things to trim from the budget. Especially if the price of that season pass had greatly increased this year. That $5.00 you may spend on a 20oz Coke in the theme park may serve you better by putting a gallon of gas in your car. Perhaps this can explain the downward trend when it comes to theme park stocks?
How busy are the parks?
While the parks themselves aren’t ready to release any attendance figures yet, I can provide some of my own first-hand observations of theme park attendance thus far.
My family visited five different theme parks in late June/early July. This included parks from the SeaWorld (SEAS), Cedar Fair (FUN) and Six Flags (SIX) chains. Please keep in mind that the observations from one park are not necessarily representative of what may be taking place across the entire chain.
On Sunday 26 June, for the Father’s Day holiday, I visited Six Flags over Georgia. Instead of the packed park that I was expecting, I found the crowd level to be extremely light. While this made for a fantastic day for me, I also thought it odd as it was the last weekend in June. While Six Flags over Georgia is not a park I visit very often, this was by far the smallest crowd I’ve ever seen at this location. Crowd levels stayed light for the duration of the day.
On 4 July (Independence Day) I opted to visit Kings Dominion park in Virginia, a Cedar Fair park. Despite the fact that the holiday fell on a Monday, I was still prepared to encounter some heavy crowds. Much like my visit to Six Flags, this proved to not be the case. The crowd levels were very light in the morning, giving us ample time to enjoy ourselves.
The levels did begin to increase around 3 pm when the temporary Grand Carnivale entertainment and the food tasting booths opened. Crowds continued to quickly grow from there as we got closer to the evening’s fireworks show at 9 pm.
Quieter days, lower theme park stocks
On 5 July, I travelled about an hour away to Busch Gardens Williamsburg, a popular park in the SeaWorld Entertainment chain. Once again we encountered low crowds in the morning. Then business picked up significantly by noon to look more like what I would expect from this park on a weekday in the summer.
In other words, it was not so crowded that it was overwhelming. There were short to medium waits for most of the popular rides throughout the park, and business looked healthy.
On a similar note, my son visited Kings Island in Ohio (a Cedar Fair park) on 5 July. He reported similar trends to what I experienced at Busch Gardens. Low crowds in the first few hours followed by the park filling out more in the early afternoon. Wait times at Kings Island seemed to get higher as the day went on. Operations were also hampered by a mid-day rainstorm that closed most of the rides for a time.
A water park summer
On Friday 8 July, my family visited Carowinds (Cedar Fair). This was also in the middle of hosting the same temporary Grand Carnivale celebration that we saw at Kings Dominion. The group did not enter the park until the afternoon, so I can’t comment on morning vs. afternoon crowds. This is my “local” park, so we have visited it often over the years. Based on the condition of the parking lot, we expected to find medium to medium-high crowd levels in the park.
Yet, once inside, the queue times for the major rides did not reflect what we saw in the parking lot. For example, the line for the park’s world-renowned Fury 325 roller coaster, started at the bottom of the stairway up into the station, leaving all the queue switchbacks completely empty. Similar conditions were found at the park’s other most popular roller coasters (Copperhead Strike, Intimidator and Afterburn).
Upon entering the included Carolina Harbor waterpark, however, the crowds were found, at last, seeking respite from the hot sun.
With these musings on theme park stocks, I will leave you with a final note about the weather. Over that two-week period, the weather trend throughout this whole region was much hotter than normal. This includes weather from the high 80s to mid-90s, with the heat index making it feel from the mid-90s to low 100s (F) on a near daily basis. With that in mind, it isn’t surprising that guests might shy away from dry park experiences in favour of a waterpark.