Mar 2 2020 - Six Flags: New Leadership, 4% Yield, Big Insider Buying
Shares of the amusement park operator have been crushed since late summer on a torrent of bad news, including poor Q4 results.
The company has brought in a new CEO, slashed its dividend, and the stock has seen major recent insider buying.
We take a deeper look at this beaten down name within the paragraphs below.
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A man who can laugh at himself is truly blessed, for he will never lack for amusement." - James Carlos Blake, Handsome Harry
Investors in amusement park operator Six Flags Entertainment (NYSE:SIX) have hit hard in recent months on a torrent of bad news. The analyst community started to sour on this name in the late last year/early 2020 as Wedbush, Berenberg, and others reiterated or place Hold/Sell ratings on the stock and, also in many cases, lower price targets on the stock.
Those worries were borne out early this year. On January 10th, the company announced that Q4 revenues would come in at between 9.5 million and 1.5 million, far below the 6 million consensus that existed in the analyst community. In addition, leadership stated that
'Six Flags-branded projects in China have not progressed as expected, citing the macroeconomic environment and the declining real estate market in China, which has caused Chinese partner Riverside Investment to default on its payment obligations'.
And this was before the huge outbreak of COVID-19 in the country. The stock fell nearly 18% on the day of the announcement, the worst daily performance in the stock's history.
Then, on February 20th, the company posted a loss of 13 cents a share for the fourth quarter. Revenues came in at 1 million, within the range of the reduced range given on January 10th. For the year, diluted earnings per common share for 2019 came in at .11, a decrease of 35 percent, compared to FY2018.
The shares took a significant hit with the results, especially given the company slashed its dividend massively from 83 cents a share a quarter to just 25 cents a share. The company provided this reasoning behind the big dividend cut,
'Our new quarterly payout ensures sufficient free cash flow to cover the dividend, preserves financial flexibility to maintain a healthy balance sheet, and provides the ability to invest in our business.'
The shares are now down over 55% from their early September highs.
A new CEO came on board in the fourth quarter from outside the company, and it was announced during the fourth quarter conference call that Six Flags' CFO was retiring. The new leader had a quarter century of experience at PepsiCo and led a number of business transformations in both domestic and international markets. Certainly, something that seems needed now with Six Flags.
Piling on this dumpster fire last week were worries about the possible spread of COVID-19 in the United States, which obviously could have big impacts on the sector. This sparked the biggest weekly loss in the stock market since the financial crisis in 2008.
Six Flags Entertainment owns and operates 26 amusement parks in North America, mostly in the United States. With the recent collapse of the stock, the shares have a market capitalization of just over billion.
It is hard to say much positive about the last few months for the company, but we will try. First, the new dividend payout looks very sustainable even if the business remains challenged and equates to an approximate four percent dividend yield. That hopefully will eventually put some sort of 'floor' under the shares. Second, an activist took an over six percent stake in the firm that was disclosed in mid-January and has engaged management in talks that might include a board seat.
Finally, there was some big insider buying in the name last week. The new CEO bought just over a half million dollars of new shares on February 24th. Three days later, a director added 0,000 to his existing stake. Finally, another director purchased over million in new shares from February 24th through 26th.
Those purchases should put the Six Flags name on the 'radars' of contrarian investors looking for a potential turnaround situation especially with the stock selling a seven-year lows. On the initial continued down leg in the stock this Monday morning, the shares have lost some 60% from their highs last summer. I just initiated a very small position in SIX using a buy-write order.
I personally prefer and own shares in Cedar Fair (NYSE:FUN) which has been better run recently and was an acquisition target of Six Flags last year. It now yields north of eight percent after last week's pullback. Cedar Fair also saw new insider buying last week as a director bought over 0,000 worth of shares on February 26th. A more bullish piece on Six Flags was put out last week by another Seeking Alpha contributor.
And that is our quick take on the massive insider buying in this very beaten down name.
Once art served to educate and edify, now it distracts and amuses." - James Rozoff