Six Flags Entertainment: Don’t Expect Bankruptcy In The Near-Term (NYSE:SIX)

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Six Flags (SIX) is without doubt one of the firms that was affected probably the most by the unfold of COVID-19. There’s little doubt that this 12 months shall be one of many worst in Six Flags’ historical past, as its parks have been largely closed in Q2 and solely just lately began to reopen. Nevertheless, I’m bullish on the corporate. With $832 million in liquidity on the finish of March, Six Flags will be capable of keep afloat and anticipate the demand to return in a while. While its complete debt stands at $2.four billion, most of that may begin to mature solely in 2024, so there’s loads of time to sort out the debt downside too. I consider that it’ll take a very long time for a vaccine towards COVID-19 to be accredited, manufactured, and distributed at scale. However, the constructive sentiment relating to the event of a vaccine will assist Six Flags inventory to achieve momentum and push it out from the distressed territory wherein it at the moment trades. For that cause, I made a decision to purchase Six Flags inventory and plan to carry it till the top of the 12 months. It’s All About Liquidity As anticipated, COVID-19 negatively affected Six Flags efficiency in Q1. Its revenues through the three months declined by 20% Y/Y to $102.5 million, whereas GAAP EPS have been -$1. The leads to Q2 and Q3 shall be even worse contemplating that the majority of its parks solely just lately began to reopen after they have been shut down in March. The spike of latest energetic instances of COVID-19 within the United States goes to harm Six Flags backside line. However, out of all the opposite main theme park firms, Six Flags trades on the lowest P/E and EV/EBITDA ratios. In my opinion, this makes Six Flags inventory the most secure funding compared to its friends since it’s not overvalued and has a better margin of security. At the identical time, compared to the remainder of the market, Six Flags is a high-risk play.
Source: Yahoo Finance. The desk was created by the creator As states and cities restrict the attendance of parks and different companies to 25% of their capability, Six Flags won’t be able to develop its revenues at its pre-COVID-19 charges anytime quickly. Also, the financial downturn and the continuing recession are weakening the demand for Six Flags parks. What’s even worse is that Six Flags was making the vast majority of its annual revenues throughout summer season months and on account of a pandemic, it’ll have one of many worst Q2 and Q3 in its historical past. At the identical time, the corporate has a complete debt of $2.four billion and it at the moment burns round $30 to $35 million per 30 days simply to remain afloat. If we see one other spherical of state-wide lockdowns, then Six Flags will proceed to burn that amount of money till the top of the 12 months and its inventory will proceed to commerce in distressed territory. In addition, Six Flags won’t be able to problem any dividends within the subsequent few years and the corporate shouldn’t be seen as a worth funding, as its inventory has too many dangers related to it. However, regardless of all of this I stay bullish on Six Flags within the near-term. While the second-quarter outcomes, which shall be launched this week, are going to be disastrous, the corporate’s poor efficiency is already priced in. At this level, Six Flags inventory together with shares of all different firms that have been closely hit by the pandemic, commerce on 2021 earnings expectations. For 2021, the analysts anticipate Six Flags to return to profitably and forecast its EPS to be round $0.46. Since the start of summer season, the bullish sentiment began to prevail, and at the moment, Six Flags has 6 BUY, 7 HOLD, and only one SELL suggestions.
Source: Wall Street Journal The excellent news is that regardless of that money burn, Six Flags managed to supply $725 million value of senior notes at a yield of seven%, which helped it to extend its liquidity to $832 million. With an curiosity protection of almost 4x, servicing its debt is just not going to be an issue for the corporate. At the identical time, Six Flags has no debt maturing earlier than 2024, which supplies the corporate sufficient monetary flexibility to climate and later get better from the present disaster. Even if there’s going to be a weak demand within the subsequent 12 months or two, Six Flags will nonetheless have sufficient liquidity to remain afloat and adapt to the brand new atmosphere. Since the corporate’s senior unsecured notes commerce near par, the chapter of Six Flags is just not going to occur within the subsequent 12 months or two on the very least. Another factor that Six Flags has going for it’s its enterprise mannequin. By providing most of its leisure experiences open air, the place there isn’t a re-circulated air, there’s much less threat to develop into contaminated with COVID-19 compared to indoor locations. For that cause, it’s unlikely that Six Flags will get the identical unfavorable popularity because the cruise liners bought by being unable to forestall the unfold of the illness on its ships. At the identical time, even when we don’t get a vaccine towards COVID-19 within the subsequent half a 12 months, Six Flags inventory will be capable of achieve momentum and respect on constructive information in regards to the improvement of a vaccine, prefer it did a number of instances in the previous couple of months. Considering all of this, I’m bullish about Six Flags within the near-term. It’s unimaginable to discover a honest worth of the corporate within the present atmosphere, however out of all of its opponents, I take into account Six flags to be the most secure funding within the outside leisure enterprise. There’s each cause to consider that the corporate’s inventory goes to understand as extra constructive information in regards to the improvement of assorted vaccines towards COVID-19 will begin to movement. Since the corporate is predicted to return to profitability in 2021 and it has no debt maturing for the following four years, there’s no cause to not be bullish about Six Flags. As the disastrous Q2 earnings are already priced in, I made a decision just lately to open a protracted place in Six Flags and plan to carry it for a 12 months or two. It’s impossible that the corporate will develop into bankrupt within the near-term regardless of burning $30 to $35 million per 30 days, because it has sufficient liquidity to remain afloat.

Disclosure: I’m/we’re lengthy SIX. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (apart from from Seeking Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.