Theme Park Revenue Riding High

by Wall Street Daily
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Up, up and away.

That’s where revenue of U.S.-based theme parks has been heading for the past three years.

Indeed, theme park revenue has grown by 3.6% in each of the past two years. And that’s after a 4.5% jump in 2010.

Those numbers may not sound that impressive, but the trend represents something spectacular.

It means that 131.6 million visitors – 4.6 million more than in 2011 – felt comfortable enough financially to fork out the big bucks these parks command.

People don’t do that when money is tight, or when they’re jobless or scared about the state of the economy.

And this year, U.S. theme parks are expected to reach a record $13.4 billion, a 2.8% gain from 2012, according to market research firm, IBISWorld.

So let’s take a look at a few stocks in this arena that could provide entertaining gains.

First Stop: The Happiest Place on Earth

Disney California Adventure, Universal Studios Hollywood and Magic Kingdom at Walt Disney World accounted for 57% of the increase in visits to the top 20 parks in North America in 2012.

Dominant among Disney (DIS) properties is its resort in Orlando, with 48.5 million visitors last year. Magic Kingdom drew 400,000 more fans due, in part, to Disney’s continuous flow of money into improvements and new attractions. Disneyland Resort in Anaheim had 23.7 million visits in 2012, an increase of 1.3 million visits versus 2011.

In 1955, admission to the Anaheim park cost $1 per person, making it affordable for just about anyone. Today, that same ticket goes for $95 after a recent 9.6% hike in price.

The average amount of money spent by a Disney visitor rose 10% in the first calendar quarter of 2013. After tumbling 6% in 2009, average spending per Disney visitor rose 3% in 2010, 8% in 2011 and 7% in 2012.

The company hasn’t resorted to any special pricing for the slower months, either.

During the second quarter 2013, Disney’s theme park and resort unit generated revenue of $3.3 billion, up 14% compared to last year. Those higher prices also helped push operating income up 73% that same quarter.

Although DIS currently trades just shy of its all-time high of $67.89, many analysts see continued growth in the range of $73 to $75 for the year.

What makes Disney a great company is that it never rests on its laurels, pumping some $10 billion into expansion from 2009 to 2015. As long as people can spend, they will – and wait in football-field length lines for the experience.

That makes Mickey and company very happy.

Because the Disney theme parks contribute only about 20% to the entire company’s bottom line, here are a few pure-plays to consider…

Six Flags: Smooth Sailing or Rough Ride?

Six Flags Entertainment Corp. (SIX) owns and operates 18 amusement parks – 16 in the United States, one in Mexico and one in Canada.

The company reported a 34% drop in net income for the three-month period ending June 30.

However, that drop may sound worse than it actually is. Apparently, Mother Nature is to blame for some of the loss, soaking its Midwest and East Coast parks for extended periods and making mud out of previously rising admission figures.

On a quarter-to-quarter basis, Six Flags may not have fared well, but revenue had consistently improved over the past three years, and earnings went from a small loss to a large gain between 2011 and 2012. Six Flags is trading at nine times earnings and yields a 5% dividend.

So there’s reason to believe Six Flags can rebound. It certainly wouldn’t be the first time the company overcame financial adversity, either.

Overbearing debt and poor management drove the company into bankruptcy during the 2008 to 2009 recession. It was subsequently bought out of Chapter 11 protection by investment firms and taken public in May 2010.

This one should deliver either way, be it through equity growth or hefty yields.

Will SeaWorld Keep its Head Above Water?

Another company to keep an eye on is SeaWorld Entertainment Inc. (SEAS). These are the folks who bring us 11 theme parks, including SeaWorld, Shamu, Busch Gardens, Adventure Island and Sesame Place.

It went public in April in one of the largest IPOs this year, after Blackstone bought the company from Anheuser-Busch InBev (BUD). It opened at $27 per share. Today it’s trading at $35.31 with a market cap of nearly $3.6 billion. For the full year 2013, SeaWorld expects to deliver around $1.46 billion to $1.49 billion in revenue.

SeaWorld releases earnings today from its first full quarter since going public. We’ll see if the company has kept its head above water, or has fallen below. Stay tuned on this one.

 

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