What Is Six Flags’ Fundamental Value?

We estimate that Six Flags’ (NYSE:SIX) fundamental value is $66. We have created an interactive dashboard that shows Six Flags’ key operational performance, such as segment-wise revenues, margins, net income and earnings, as well as our share price forecast. You can adjust revenue and margin drivers to see the impact on earnings. Below we discuss our expectations and forecasts for the company.

Theme Park Tickets Accounts For Over 50% Of Six Flags’ Revenues

Six Flags is a well-known theme parks operator, with parks primarily located in the U.S. It generates its revenues from four key sources – Theme Park Tickets, Theme Park Food & Merchandise, Sponsorship & Licensing Fee, and Accommodation. Among these segments, Theme Park Tickets alone accounts for roughly 55% of the company’s revenues. Below we discuss the revenue estimation for Six Flags.

Theme Park Ticket Revenues Are Expected To Grow 3% In 2018

Theme Park Ticket revenues are driven by two factors — Attendance and Average Ticket Price. The company has seen low single-digit attendance as well as average ticket price growth over the last few years, and we expect this trend to continue in the coming years as well. While attendance in theme parks in general is on the rise and Six Flags is also benefiting from the same, average ticket prices are usually raised by the theme park operators almost on an annual basis to cope with the increasing costs, which are passed on to the visitors.

Theme Park Food & Merchandise, Likely To See Modest Growth

Theme Park Food & Merchandise revenues are driven by the attendance and average spend per guest inside the theme park. While we forecast steady growth in the attendance, as discussed above, we don’t see much change in average spend per guest inside the park. The figure on an average has been around $17, and we expect it to remain around these levels. Accordingly, the segment revenue will likely see only a modest growth in the coming years.

Looking at Sponsorship & Licensing fees, the segment saw double-digit growth in 2017, and we expect the segment to continue to grow in the coming years, albeit at a slower pace. Six Flags’ Accommodation revenues have declined in the recent past, and we expect this trend to continue given massive competition in the hotel industry, which impacts the overall revenue per available room (RevPAR) for many players.

Estimating Six Flags Share Price of $66

To arrive at the company’s share price, we estimate the enterprise value, using EV/EBITDA multiple. We forecast the company’s EBITDA margin to remain at around 45%, as it was in the recent past. This will translate into EBITDA of a little over $625 million in 2018. We use the historical EV/EBITDA multiple of 12 to arrive at the company’s enterprise value of $7.5 billion. Assuming no change in the company’s net cash in 2018, the estimated market cap for 2018 comes to $5.56 billion. We use an 85 million outstanding shares figure to arrive at our price estimate of $66.

There are certain risks to our estimates. While the overall theme park business is growing, Six Flags could lose market share to rivals Disney and NBCUniversal, which have much deeper pockets to spend on improving their parks and introduce new rides from time to time.

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