About six months ago I was extremely wary about the near-term outlook for the major theme parks. I think I was justified, considering the economy looked like it was in meltdown mode and consumers were plain scared to spend their money on almost anything, much less on park admissions. However, I am becoming more and more optimistic about this space as it appears the consumer is starting to spend slightly more and the economy appears to be in stabilization mode. Let's take a closer look at some of the major operators.
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Fun and Profit
The Walt Disney Company (NYSE:DIS), the granddaddy of theme parks, is my favorite in the group. I think that the experience its parks offer the consumer are second to none, and with the stock market having rebounded pretty sharply in recent months and real estate looking like it may have found a bottom, I truly believe that consumers are going to be more inclined to make the trip to Walt Disney World or Disneyland in the months ahead. Of course, as a fall back, the company has multiple business such as Studio Entertainment and Consumer Products that can pick up some the slack if a full-fledged comeback at its theme parks takes longer than expected. DIS trades at about 13.7 times this year's estimate (which is currently $1.71.). I think this is reasonable, and within 12 to 18 months time I can see this stock going north of $30.
Shaky Outlook
Great Wolf Resorts' (Nasdaq:WOLF) indoor water parks are a lot of fun, and I think that those that don't want to travel too far from home are likely to continue frequenting its parks. It has several locations that are convenient to those located in populated cities and metropolitan areas, especially along the eastern seaboard; Great Wolf has locations in Pennsylvania, Virginia and North Carolina. However, I don't think that the company will be able to steal Disney's top position anytime soon.
With the economy showing some signs of real life, I think that Great Wolf's wares may lose some of their luster to Disney, which offers much larger parks. I'm also thinking that other large theme parks including Hershey Park in Pennsylvania could see a nice increase in traffic throughout the summer months as consumers ramp up spending. Great Wolf, however, has a few characteristics I'm not too thrilled about. One thing is that it trades under $3 a share, which I believe may keep certain institutions and analysts from warming to this situation. The other big issue is that it is expected to lose a load of money this year and next year.
The Good and the Bad
Cedar Fair (NYSE:FUN) might not be an easily recognizable name. However, it has some mighty recognizable properties, including Dorney Park and Kings Dominion, which most East Coast residents have heard of. And on the West Coast, the company has Knott's Berry Farm. I think its properties are likely to be in high demand in the months ahead as consumers hit the open road during the warmer months. Wall Street also expects the company to deliver on the earnings front. At present, Cedar Fair is expected to earn $1.40 a share this year and $1.62 a share next year. That means it's trading under eight times this year's estimate. In addition, the company has an implied expected growth rate of more than 15% (from $1.40 to $1.62), which I think is very good in this environment.
Six Flags (OTC:SIXF.PK) is one company I'm steering clear of. In fact, it made headlines this past week as it filed for bankruptcy. At present, the shares trade under $1, and they aren't even a consideration from an investment standpoint.
Bottom Line
With the economy slowly clawing its way back, I think that theme park operators deserve a closer look. Of the above-mentioned, Disney is my favorite. However, Cedar Fair also catches my attention, and deserves further research. (For more, check out our Investopedia Special Feature on Economic Recovery: Get Ready.)
