Key Takeaways
- Six Flags Entertainment (FUN) has closed a private offering of $1 billion in 8.625% senior notes due 2032 to redeem its outstanding 2027 senior notes.
- The company’s share price has seen a sharp 17.68% gain in the last month and a 3.95% gain in the last 7 days.
- Despite this, the 1-year total shareholder return of 62.66% and 3-year total shareholder return of 58.63% indicate weak long-term momentum.
- The company’s valuation gap suggests it may be undervalued, with a fair value estimate of $26.08 per share compared to the current price of $16.57.
- High leverage and weather-driven attendance volatility are key risks to the company’s narrative.
Introduction to Six Flags Entertainment’s Refinancing
Six Flags Entertainment (FUN) has recently closed a private offering of $1 billion in 8.625% senior notes due 2032, with the proceeds being used to fully redeem its outstanding 2027 senior notes. This refinancing news has arrived alongside a significant increase in the company’s share price, with a 17.68% gain in the last month and a 3.95% gain in the last 7 days. However, the company’s long-term momentum has been weak, with a 1-year total shareholder return of 62.66% and a 3-year total shareholder return of 58.63%. This disparity between short-term and long-term performance has raised questions about the company’s valuation and whether it represents an undervalued turnaround story or a market already looking through to future growth.
Valuation and Fair Value Estimate
The most popular narrative surrounding Six Flags Entertainment points to a fair value of around $26.08 per share, compared to the current price of $16.57. This valuation gap suggests that the company may be undervalued, with a potential upside for investors. The narrative behind this estimate is based on steady revenue gains, margin rebuild, and a future earnings multiple below many hospitality peers. The resurgence in attendance and season pass sales following the launch of new attractions and the reimagined all-park pass structure has supported higher recurring revenue and improved earnings visibility. However, this fair value story competes with real pressure from high leverage, with net debt of $5.3 billion, and weather-driven attendance volatility.
Risks and Challenges
Despite the potential upside, there are key risks and challenges facing Six Flags Entertainment. The company’s high leverage and weather-driven attendance volatility are significant concerns, and the narrative surrounding the company’s valuation is not without its risks. Investors should be aware of these challenges and carefully consider them when evaluating the company’s potential for growth. Additionally, the company’s long-term momentum has been weak, which may indicate underlying issues that need to be addressed.
Building a Custom Thesis
For investors who are not convinced by the popular narrative surrounding Six Flags Entertainment, or who prefer to test the assumptions themselves, it is possible to build a custom thesis in minutes. A great starting point for research is to analyze the company’s 3 key rewards and 2 important warning signs that could impact the investment decision. By using data-driven filters, investors can uncover stocks that truly fit their goals and risk tolerance. Additionally, investors can use tools such as portfolio companions to track the fair value of their stocks and receive alerts to new warning signs or risks.
Conclusion and Next Steps
In conclusion, Six Flags Entertainment’s refinancing and valuation gap have raised questions about the company’s potential for growth and whether it represents an undervalued turnaround story. While the company’s share price has seen a significant increase in the short term, its long-term momentum has been weak. Investors should carefully consider the risks and challenges facing the company, including high leverage and weather-driven attendance volatility, and build a custom thesis based on their own research and analysis. By doing so, investors can make informed decisions about whether to invest in Six Flags Entertainment or explore other opportunities in the market.
