Here’s Why SeaWorld Entertainment Is a Buy

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SeaWorld Entertainment Inc. (NYSE:SEAS) is a leading theme park and entertainment company. You may be familiar with its leading attraction, the highly trained killer whales the park features for shows. The company is working to deliver personal, interactive, and educational experiences that blend imagination with nature. It is a unique experience, speaking as someone who has visited SeaWorld Park. But the company owns or licenses a portfolio of globally recognized brands including not only SeaWorld and Shamu, but also Busch Gardens.

Over its more than 50-year history, the company has built a diversified portfolio of 11 destination and regional theme parks that are grouped in key markets across the United States, many of which showcase its one-of-a-kind collection of approximately 86,000 marine and terrestrial animals. The theme parks feature a diverse array of rides, shows, and other attractions. In addition to its theme parks, the company has recently begun to leverage its brands into media, entertainment, and consumer products.

But the stock itself is bumping along a 52-week low. Although the stock is near a 52-week low, it may be an attractive buy going forward into the seasonally strong spring and summer months. Further, the company’s winter quarter from January to Match was weaker than expected, which has helped drive the share price this low.

For the first quarter of 2014, SeaWorld Entertainment generated revenue of $212.3 million, a decrease of $26.3 million, or 11 percent, versus the first quarter of 2013. The decrease in revenue was primarily driven by a 13 percent decrease in attendance, partially offset by a total revenue per capita increase of 2.2 percent from $68.19 in the first quarter of 2013 to an all-time record of $69.72 in the first quarter of 2014. Attendance in the first quarter was impacted by a shift in the timing of Easter into the second quarter of 2014, which caused a shift in the spring break holiday period for schools in many of the company’s key source markets.

Attendance was also impacted by adverse weather, particularly above-average precipitation in the Florida market as well as below-average temperatures in the Texas market for the first quarter of 2014. The company saw adjusted earnings before tax at a loss of $15.8 million, compared to a positive $11.1 million in the first quarter of 2013. The company reported a net loss of $49.4 million, or a loss of 56 cents per diluted share for the quarter. Adjusted net loss was $49.1 million, or a loss of 56 cents per diluted share. In last year’s quarter, the company generated a net loss of $40.4 million, or a loss of 49 cents per diluted share.

However, it wasn’t all bad, as admission per capita increased by 3.6 percent from $43.56 in the first quarter of 2013 to $45.12 in the first quarter of 2014 primarily as a result of higher ticket pricing and the mix of ticket products sold. In-park per capita spending, calculated as food, merchandise, and other revenue divided by total attendance, remained relatively flat at $24.60 in the first quarter of 2014 compared to $24.63 in the prior-year quarter. 

The quarter was weak, no doubt about it, driving the share price down to 52-week lows. After another selloff this week and based on current and future earnings projections, I think the stock is a buy. It pays near a 3 percent dividend yield, which will help cut off downside risk. Further, despite a bad quarter, for full-year 2014, the company reaffirmed its previously provided guidance and expects revenue to be in the range of $1.49 billion to $1.52 billion, and for adjusted earnings to be in the range of $450 million to $465 million.

Thus, I think the stock can start to be picked up on sale while the seasonally strong quarters approach. The economy is apparently rebounding, so this should translate to more family vacations and theme park visits. I rate the stock a buy and assign a $35 price target.

Disclosure: Christopher F. Davis hold no position in SeaWorld Entertainment and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $35 price target.

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