After struggling through a difficult transition year, Cedar Fair, L.P. (FUN), owners of 18 amusement parks across the US and Canada, face an unclear future in 2008. The stock, with its flagship park Cedar Point in its headquarters of Sandusky, Ohio, has grown over the last couple of decades by purchasing such parks as ValleyFair amusement park years ago, but last year bit off a big acquisition when it purchased the Paramount Parks’ portfolio, which includes Kings Island in Cincinnati and a group of parks in the southern US.
The strategy was to offset the difficult market for Cedar Point, which draws most of its visitors from Ohio and Michigan, principally between Cleveland and Detroit, two rust-belt cities that have been hard hit economically. The economic base for Cedar Point has seen a secular change, with the loss of not only manufacturing jobs, but a declining population in the last twenty years. Add high gas prices and a slowing economy, with above average unemployment, and the reason for Cedar Fair’s acquisition strategy becomes apparent.
Cedar Fair is not alone in the theme park world experiencing trouble in the funhouse. Six Flags (SIX), once a thriving, burgeoning group with growth prospects in the south and Midwest in the US, is on the ropes and may not survive. Disney (DIS), the juggernaut of the theme park universe, remains solid if not spectacular due to its huge economies of scale, its ubiquitous branding, and its relative diversity with entertainment, film and television. Cedar Fair has no such diversification. Its portfolio is all in parks. Also, it must digest the costly acquisition of the Paramount Parks, while still in stride to increase growth and earnings yet keeping costs under control. 2008 may be a telling year for this stock.
Cedar Fair, which drew 22 million guests versus 19 million in 2006, was trading near a twelve-month low at 20.23 ($19.75-$30.75 52 week range). It is projected to earn $1.17 per share next year (year ending December, 2008) versus $0.85 final projections for the full year ending in 2007. The stock has historically been favored by cash-seeking investors for its dividend, which currently pays over nine percent. Analysts have predicted a dividend cut; some have even suggested as far back as last summer.
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