Cedar Fair Stock Recovers 126% – Has It Peaked?

FUN: Cedar Fair logo
FUN
Cedar Fair

We believe Cedar Fair stock (NYSE: FUN) may not be a good opportunity at the moment. FUN stock trades at close to $42 currently and is, in fact, still down 25% since the beginning of 2020 when it traded at around $55. The stock was at at $54 in February 2020 – just before the coronavirus pandemic hit the world – and is currently still 23% below that level as well. FUN stock has recovered over 126% from its March 2020 level of $18, compared to the S&P 500 which gained 70% from its March lows. The stock was able to beat the market as the lifting of lockdowns and opening up of the economy is leading to a gradual restarting of Cedar Fair’s theme parks which have been shut since March due to the pandemic. Also, with the US government announcing a string of measures to keep businesses afloat, investor sentiment improved over recent months. However, full recovery looks unlikely anytime soon due to the recent spike in Covid-positive cases, emergence of the new virus strains, and lockdowns reimposed in some countries leading to uncertainty around the full capacity reopening of amusement parks. Our conclusion is based on our comparative analysis of Cedar Fair stock performance during the current financial crisis with that during the 2008 recession in our interactive dashboard.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 70% from the lows seen on Mar 23, 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
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In contrast, here is how FUN stock and the broader market fared during the 2007-08 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

FUN and S&P 500 Performance Over 2007-08 Financial Crisis

We see FUN stock declined from levels of around $24 in September 2007 (pre-crisis peak) to levels of around $8 in March 2009 (as the markets bottomed out), implying FUN stock lost 68% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of over $11 in early 2010, rising by 49% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

FUN Fundamentals Over Recent Years

FUN revenues increased from $1.3 billion in 2016 to $1.5 billion in 2019, primarily due to higher footfalls and the acquisition of Schlitterbahn parks. Earnings have remained volatile but have been over $3.00/share over recent years. However, the company’s revenues crashed 88% y-o-y in the first nine months of 2020. Revenues in the last twelve months have only come in at $0.4 billion while the company reported heavy losses of $8.54/share during this time, with financials being severely impacted by the ongoing pandemic.

Does FUN Have Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

FUN’s total debt increased from $1.5 billion in 2016 to $2.7 billion in Q3 2020, while its total cash increased from around $123 million to $225 million over the same period. The concern is that the company reported a cash outflow of $262 million from operations in the last twelve months. Thus, high debt burden and negative cash from operations are near term risks that the company faces.

Conclusion

Phases of Covid-19 Crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Despite the recent surge in the number of new Covid-19 cases in the U.S., we expect continued improvement in demand to buoy market expectations. As investors focus their attention on expected 2021 results, we believe Cedar Fair stock has the potential for strong gains, but only once the fears surrounding the Covid outbreak are put to rest. However, with Covid cases seeing some spike higher recently, the timing of recovery in the amusement parks business still looks uncertain. Though revenues and earnings will improve in 2021, the footfalls will not go back to the pre-crisis period any time soon, which would make the stock hover around its current level and not see any major upside in the near term.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

 

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