When an earnings report posts a revenue contraction of more than 95% year on year, there’s no hiding that from investors. But in most cases, they’ll have known something like that was coming. So it’s been with shares of
SeaWorld Entertainment (NYSE: SEAS), the famous aquatic theme park based out of Orlando.
Just like Six Flags (NYSE: SIX), who we wrote about earlier this week, SeaWorld has been on the front line of the coronavirus pandemic and has remained vulnerable to its ebbs and flows. Just as shares appeared ready to reclaim all-time highs in February, they dropped a harsh 80% to all-time lows in just four weeks.
But for any investors who were brave enough to get involved at those levels, there’s been a juicy 215% rally since. However, that can’t mask the fact that shares are still only trading towards the top of the range they bounced around in from 2014 to 2018.
Solid Momentum
That being said, it looks like shares are about to start breaking out to the upside and continue the recovery to pre-COVID levels. On Tuesday, Credit Suisse were out with an upgrade to the stock, moving it to a bullish Outperform rating from Neutral. Similar to other recovery stories in play right now, Wall Street is realizing that for the most part, the worst case scenario has been priced into a lot of these stocks and there’s a ton of room for upside surprises.
In a note to clients, analyst Benjamin Chaiken said "while Orlando has been lagging, we think that is well understood by investors, and we see some positive momentum from further reopening in the state as well as air traffic trends. Additionally, SeaWorld is in a good position to benefit from a news flow perspective should travel restrictions continue to loosen (e.g., CA and Orlando), largely operating year-round parks”.
He’s essentially saying that the risk/reward profile is fairly attractive at current levels, given travel restrictions are more likely to continue to be rolled back than clamped down on again. A fresh price target of $30 suggests upside potential of almost 50% from Tuesday’s closing price and should give the bulls plenty to be happy about. Chaiken also noted the potential for additional cost saving measures from management to come into play in the near term.
On that note, only last month the company permanently laid off thousands of workers who’d been furloughed and said they expect to record close to $3 million in restructuring and severance costs this year. It may take another earnings report before we see the effect this will have on operating costs but it has to be a good thing from a numbers perspective.
Plenty of Catalysts
In more positive news, construction is continuing on the first new SeaWorld outside of North America as well as the company’s first new theme park in 30 years. SeaWorld Abu-Dhabi is about 40% complete due to recent reports and will provide a solid catalyst for bulls to aim for down the line.
Other major catalysts include the reopening of the various parks, which will bring some much-needed revenue into the business. While not all SeaWorld parks will be reopened in 2020, SeaWorld San Diego has already undergone a soft reopening with limited guest numbers.
So even though as a theme park SeaWorld remains on the front line in terms of vulnerability to COVID, most of the band-aid of uncertainty has been ripped off over the past six months. Investors getting involved are buying into a comeback story that might take a while to play out but that is definitely unfurling. Shares are trading close to post Q1 lows and Tuesday’s upgrade should be enough to help send them into the mid $20s.
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