A 'first look' at United Parks & Resorts
Amid keeping an eye on the stock of one amusement-park operator over the past couple months, another one is now on my radar...
In my May 29 e-mail, I discussed the upcoming merger between amusement-park operators Cedar Fair and Six Flags Entertainment (FUN) – which was completed last month. As you can see in this chart, the stock has been on a wild ride since May 29 – soaring until early July and then pulling back sharply:
As I explained back in that May e-mail, I was intrigued by Six Flags but didn't think the stock looked fully compelling enough yet.
So I continue to follow Six Flags, but I'm actually more interested in one of its competitors: United Parks & Resorts (PRKS), which one of my readers suggested that I take a closer look at. (Thank you, Terry P.)
United Parks operates theme parks and water parks under the SeaWorld, Busch Gardens, Sesame Place, Aquatica, Water Country USA, Adventure Island, and Discovery Cove brands.
The business has had its ups and downs over the past 15 years, as you can see from this chart of its revenues and net income:
After recovering nicely from the global financial crisis, with net income peaking at $74 million in 2012, the business then declined for the next five years, bottoming at negative $202 million in 2017.
Then net income turned around in 2018 and 2019, crashed briefly during the pandemic, recovered to $257 million in 2021, and has remained strong ever since.
Not surprisingly, United Parks' share price has tracked profitability. The stock declined from 2013 through 2017, then tripled, then crashed amid the pandemic, then soared by about 8 times during the recovery, and now sits about more than 33% below its 2022 high:
As you would expect, amusement parks require a great deal of capital expenditures ("capex") to build new rides/attractions and maintain existing ones. So let's next take a look at United Parks' capex:
You can see that, with the exception of severe recession periods in 2009 and 2020, the company has generated consistent free cash flow ("FCF") – mirroring net income.
And as you can see in this next chart, United Parks' net debt (total debt minus cash) has only risen slightly over time:
Rather than use its FCF to pay down debt, United Parks instead paid a small dividend from 2013 through 2016. Since then, the company has focused on share repurchases. Take a look:
The big share repurchases in 2022 caught my eye because, as you can see from the stock chart from earlier, PRKS shares peaked at around $75 in the early months of that year but then quickly crashed to around $40.
Was United Parks foolishly buying back stock at the peak... or wisely doing so only after it crashed?
To answer this question, let's look share repurchases by quarter over the past five years:
We can see that United Parks has a mixed track record of share repurchases – it was paying too much in late 2021 and the first quarter of 2022, but smartly bought back a lot of shares when the stock crashed in the second quarter of 2022. And I like to see the recent ramp-up of repurchases.
As a result of these repurchases, the diluted share count has fallen by 26% since 2018, which increases earnings per share by 35%:
In summary, United Parks' historical financial results show a mixed picture...
As the pandemic ended and people made up for lost time by ramping up travel – going to movies and amusement parks, etc. – United Parks' profits and FCF sharply improved... but haven't grown at all in the past few years.
When I continue my analysis of United Parks on Monday, I'm going to need to see a very cheap stock or a very compelling growth story to convince me that it would be a stock to buy... Stay tuned!
Best regards,
Whitney
P.S. I welcome your feedback... and I'm always interested in hearing about potential stocks to take a look at – send me an e-mail by clicking here.