Morgan Stanley is bullish on regional theme parks and believes two names particularly are poised to outperform: Cedar Fair and SeaWorld. The Wall Street firm initiated coverage of the stocks on Thursday with chubby rankings. Its price goal of $53 for Cedar Fair implies nearly 27% upside from Wednesday’s close, while its $70 price goal for SeaWorld suggests about 30% upside. “We consider US regional theme parks take part in a growing industry that advantages from differentiated assets, high barriers to entry (i.e., low competitive risks), pricing power, and opportunities for operating leverage,” analyst Thomas Yeh wrote in a note to clients. Each Cedar Fair and Sea World have underappreciated pricing power because of their attractive relative value to other entertainment options and the loyalty of growing season pass members, he said. The businesses have seen revenues increase 20% to 30% from 2019 to 2022, outpacing the development during this time in other consumer-related sectors, he identified. That increase in revenue got here despite attendance that won’t yet fully recovered to pre-pandemic levels. FUN YTD mountain Cedar Fair’s year-to-date performance Wage pressure can also be subsiding, which supports margin expansion, Yeh noted. Lastly, regional theme park earnings before interest, taxes, depreciation, and amortization multiples are down 15% to twenty% in comparison with pre-Covid levels. Compared, lodging multiples are down 5% to 10% and gaming/cruise multiples are up 5-10%, he said. Particularly, Cedar Fair has well-invested properties and a robust recurring visitor base, which speaks to its underlying pricing power, Yeh wrote. “Margins have underperformed peers on elevated labor wages, but we see the chance for higher operating leverage ahead, as park revenues proceed to scale and expense growth normalizes,” he said. SEAS YTD mountain SeaWorld’s year-to-date performance An overlapping footprint with Disney and Universal and potential tailwinds from returning international visitation should drive attendance and per capita spending growth for SeaWorld, Yeh said. “Concentrated revenue footprint increases scale opportunities as operating cost reduction initiatives proceed, while higher capex in ’23E could unlock long-term growth opportunities,” he wrote. While there are concerns a few potential recession, he believes the regional theme parks can weather a downturn. “While not resistant to broader economic cycles or a possible slowdown in consumer spending, the regional theme parks have demonstrated resilience with a comparatively quick EBITDA recovery in past cycles vs. other consumer subsectors and destination parks, benefiting from a regional customer base and relative affordability,” Yeh said. Cedar Fair is up just over 2% yr so far, while SeaWorld is little modified. — CNBC’s Michael Bloom contributed reporting.
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