Analyst: SeaWorld Should Cut Dividend to Pursue Growth
SeaWorld Stock Down 28% in Past Three Months
New York, NY — SeaWorld Entertainment Inc. (NYSE:SEAS) was upgraded to neutral from underperform at Credit Suisse on expectations that the company will cut its dividend and use the money for growth. (Source: “SeaWorld upgraded, but it still desperately needs roller coasters,” MarketWatch, August 12, 2016.)
Analyst Benjamin Chaiken thinks that the stock’s valuation are now more reasonable than in May, when he turned bearish on it. (Source: Ibid.)
Shares of SeaWorld rose 0.8%, after gaining as much as 3.1% earlier in the session. The shares have plunged 28% in the past three months, compared with the S&P 500’s gain of 5.9%.
Chaiken cut his stock price target from $15.00 to $12.00, which was more than nine percent below current levels. The average analyst rating on FactSet equals a hold and the average price target currently stands at $14.65. (Source: Ibid.)
With falling sales and shrinking cash flow, Chaiken said the aquatic theme park would need to borrow cash this year if they are to have any hope of simply affording the dividend payment and they should “cut” their dividend, even if it is a covenant breach, and use the cash, believed to be $80.0 million a year, to buy new roller coasters each year.
This month, the company reported diluted $0.21 earnings per share for the second quarter, down from $0.22 in the same period last year on sales of $371.1 million. (Source: “SeaWorld Entertainment, Inc. Reports First Half 2016 Results,” SeaWorld Entertainment, August 04, 2016.)
Due to, “an overall downturn in the Orlando market in the latter half of June, and the impact of Tropical Storm Colin. Latin American attendance is down approximately 40%, or 235,000 guests year-to-date,” said Joel Manby, president and chief executive officer of the company.
“Although we are disappointed with the factors affecting our 2016 outlook, particularly in Florida, we are encouraged by some positive indicators at our other park locations. For the first half of 2016, revenue in Texas is up approximately 2% compared to a decline of 17% in the same period last year,” he said. “California continued to improve, and revenue was down 2% for the first half compared to a decline of 8% in the same period last year.”
In a note to clients, Chaiken noted that SeaWorld could consider a more “aggressive reinvestment” strategy and sell its Busch Gardens Parks, potentially to competitors, for $1.0 billion in proceeds. With those funds, the company could reduce its debt and add 25 new roller coasters, “which would help transform the experience of its park overnight.” (Source: Ibid.)