SeaWorld Leisure: New Thrills Deliver Upside Hopes For 2023 (NYSE:SEAS)

SeaWorld Leisure, Inc. (NYSE:SEAS) delivered record-breaking high and backside line ends in FY21. FY22 has had extra headwinds, impacted by inflation, labour shortages and a natural disaster. Nonetheless, SEAS has a enterprise mannequin delivering outcomes via tougher instances. The recipe to success has been rising per capita spending quite than rising attendee numbers, whereas worldwide and group-organised guests nonetheless must be greater. This spend might be attributed to elevated funding in services, applied sciences and pricing round merchandise, meals and admission charges.

There’s nonetheless numerous upside potential if the corporate can improve its attendance to its beforehand traditionally excessive numbers. Though there’s numerous competitors and options, SEAS gives numerous actions at easy-to-reach day journey areas. Moreover, some thrilling new ventures exist, reminiscent of its first worldwide park opening in Abu Dhabi and continued talks of onsite resorts. Subsequently buyers could need to take a bullish stance on this inventory.

Overview

5 months in the past, I wrote an article with an overview of SEAS. Since then, the inventory worth has elevated by 9.72%. SEAS has made main restructuring and branding modifications over the previous few years, permitting it to compete with a few of the high gamers within the trade. It has twelve theme parks throughout the USA and a portfolio of manufacturers, together with SeaWorld, Busch Gardens, Discovery Cove, Sesame Place and Water Parks. Income is generated via park admission charges, meals, garments and merchandise In-park spending was 43% of whole income in FY21. Business-wide parks elevated their ticket costs in 2022. At SEAS, a person may rapidly spend $174.98 for a one-day ticket, single meal, drink and parking spot.

SEAS has additionally improved its high and backside line outcomes for the final three quarters, though it missed EPS expectations by $0.16 to succeed in $1.99 per share final quarter. SEAS competes in opposition to vacation spot parks, reminiscent of Disney (DIS) and Common (CMCSA), and regional theme park choices, reminiscent of Cedar (FUN) and Six Flags (SIX). Earlier this yr, SEAS made an unsuccessful takeover offer of FUN at $3.4 billion.

I’ve in contrast the inventory’s efficiency to a few of the high friends and seen that SEAS has supplied above-average worth returns over three years at 67.31%.

Progress Catalysts

One of many fast progress potentialities for SEAS is its underutilised capability. Beforehand attendance reached historic highs of 25 million guests in 2008, in comparison with 22 million in 2022. Though SEAS had major branding issues put up animal rights scandals, it has reinvented itself as a theme park with an animal conservation focus. If we have a look at the 4.5 score by 87,186 Google opinions, it exhibits a optimistic signal in the direction of buyer sentiment.

This previous quarter, worldwide guests had been nonetheless down 45% in comparison with 2019, and group visitations had been down 20% for a similar interval. If these numbers had been to return, there might be some extreme upside as a result of excessive spending per capita statistics of $77.05 this previous quarter, in comparison with $72.13 one yr prior. SEAS has elevated admissions per capita by 4.1% to $42.75, and other people have elevated their in-park spending by 10.4% this previous quarter to succeed in $34.30.

SEAS’s downturn in attendees and closures has allowed it to deal with large investments and upgrades to its parks. This spring, 2023, every park might be opening a first-of-its-kind ride, from a surf coaster in Orlando to a flume coaster in Antonio. This might create numerous buzz and pleasure to go to these parks. Beneath we will see the annual income in 2021 with fewer attendees than in 2019.

Future progress alternatives lie within the firm’s soon-to-open and first-ever worldwide SeaWorld Abu Dhabi location, which would be the largest aquarium on earth at 183,00m2 and throughout 5 flooring. SEA has talked about that it’s a capital-light licensing settlement. The administration workforce has famous furthering in-park lodge choices, though one thing concrete has but to be introduced.

Financials and Valuation

As a consequence of low worldwide and group visitation numbers, SEAS isn’t at pre-COVID-19 working numbers. Nonetheless, it has elevated whole income per capita with in-park spending efforts and ticket pricing, which led to the record-breaking high and bottom-line outcomes with revenues for FY21 at $1.503 billion, web revenue of $256.5 million and EBITDA of $603.5 million. Gross revenue margin elevated to 53.12% for FY21 from 46.98% in FY19. We are able to see that the inflationary market is impacting the margins with a decrease TTM of 51.92%. Outcomes present that the corporate may once more finish with a robust efficiency. These efforts turn out to be much more fascinating because it operates at lower than max capability.

One of many crimson flags that stands out is the corporate’s excessive web debt. Nonetheless, if we examine it to the friends available in the market, we will see that top web debt is typical throughout the trade. The corporate has $109.57 million in money, with low present and fast ratios of 0.64 and 0.44. Nonetheless, it has a wholesome coated ratio of 4.72, indicating that it may possibly rapidly meet present curiosity cost obligations.

The stability sheet liquidity of $479.9 million permits it to proceed to develop and put money into the enterprise whereas rewarding shareholders. It would not have a dividend program; nevertheless, it has a frequent repurchasing program. Yr up to now, the corporate has repurchased $12.3 million in shares. Moreover, it has a optimistic free money stream of $119.6 million and $169.2 million money from operations. Its CapEx spending was $49.7 million in Q3, of which $17.1 million was spent on growth and ROI initiatives. Complete expenditure for 2022 might be round $290 million in CapEx.

If we have a look at SEAS’s valuation in comparison with its friends, we will see that it has a price-to-earnings ratio of 13.24, which is decrease than its most direct competitor, SIX, at 18.65. FUN is probably the most undervalued at 9.22. SEAS is rated by varied analysts between Maintain and Purchase scores, with Zacks Rank and SeekingAlpha’s Quant score indicating a Maintain score of three and three.1. On the identical time, Yahoo Finance and Wallstreet analysts lean in the direction of a Purchase score.

Dangers

We’ve got seen that the corporate has a excessive debt consumption with low present and fast ratios. Though the corporate can sufficiently cowl its curiosity cost obligations, it wants extra fast property if it had been to have to fulfill its short-term obligations instantly. That is one thing to be cautious of within the case of efficiency interruptions. Moreover, massive amusement parks are impacted by the inflationary surroundings and workers shortages, which is able to proceed to have an effect on upcoming performances by elevating bills and decreasing margins. Many macro-environmental elements are out of the management of the corporate. Climate is one such issue which might profit or have a severely detrimental influence on its efficiency. The corporate indicated that Hurricane Ian resulted in 90,000 fewer visitors than anticipated within the prior quarter. Labour can even be a urgent subject if the parks begin to attain greater capability numbers, though SEAS is utilizing its cell app to create efficiencies reminiscent of on-line restaurant orders.

Remaining ideas

Whereas we must always stay cautious of the corporate’s excessive debt consumption and low liquidity ratios, SEAS has a beautiful price-to-earnings ratio of 13.24 and is benefiting from pent-up demand in a rising amusement park trade, which is predicted to develop at 6.14% to succeed in $77.7 billion by 2027. Moreover, it has invested in creating and updating park services and can open the world’s largest aquarium later this yr in Abu Dhabi. Because of this, the inventory warrants a bullish stance.