SeaWorld Entertainment, Inc. (SEAS - Get Rating) and Six Flags Entertainment Corporation (SIX - Get Rating) are two prominent theme park and entertainment companies in the United States. SEAS has a diversified portfolio of approximately 12 differentiated theme parks grouped in markets, mostly showcasing the zoological collection and featuring a diverse array of thrill and family-friendly rides, educational presentations, shows, and other attractions with a demographic appeal. It also operates SeaWorld, a marine-life theme park brand. SIX owns and operates regional theme and waterparks, offering various thrill rides, water attractions, themed areas, concerts and shows, restaurants, game venues, and retail outlets. The company also sells food, beverages, merchandise, and other products and services within its parks.

The easing of COVID-19 restrictions has enabled theme parks to recover their sales over the past year. Amid high consumer spending, the introduction of multiple theme-based attractions, live entertainment shows, and various adventurous and thrilling rides for both children and parents should invite more visitors in the coming months, helping the industry grow substantially. The global theme parks market is expected to grow at a 4.8% CAGR to reach $79.74 billion by 2025. So, both SEAS and SIX should benefit.

While SIX lost 1.1% over the past month, SEAS surged 5.5%. SEAS is a clear winner with 33.3% gains over the past year versus SIX’s 13.4% loss. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On March 28, 2022, SEAS and Sesame Workshop, the nonprofit educational organization behind Sesame Street, an American children’s TV series, has officially opened Sesame Place San Diego, the newest theme park in California and the first Sesame Place on the West Coast. The all-new theme park is full of immersive experiences, and admission provides access to all water attractions and family-friendly dry rides, shows, parades, etc. This should attract huge tourist attractions in the coming months.

On March 24, 2022, SIX’s Six Flags Great America amusement park, in partnership with Warner Bros. Themed Entertainment and DC, announced the introduction of DC UNIVERSE, an exciting, newly themed section of the park featuring some of DC’s most iconic Super Heroes and Super Villains. It will feature three reimagined attractions – THE FLASH: Vertical Velocity, a high-speed launch coaster; AQUAMAN Splashdown, a winding flume ride with a watery plunge; and DC Super-Villains Swing, an exhilarating spinning attraction twirling guests in a 360-degree orbit. This one-of-a-kind themed section will also include park favorites BATMAN The Ride and THE JOKER Free-Fly Coaster.

Recent Financial Results

SEAS’ total net revenues for its fiscal 2021 fourth quarter ended December 31, 2021, increased 140.7% year-over-year to $370.82 million. The company’s operating income came in at $85.30 million, versus a $23.37 million loss in the year-ago period. SEAS’ net income came in at $71.54 million for the quarter, compared to a loss of $45.54 million in the prior-year period. Its EPS came in at $0.92, versus a $0.58 loss per share in the year-ago period. As of December 31, 2021, the company had $443.71 million in cash and cash equivalents.

For its fiscal 2021 fourth quarter ended January 2, 2022, SIX’s total revenues increased 191.7% year-over-year to $316.81 million. The company’s pre-tax income came in at $3.69 million, compared to a loss of $112.78 million in the prior-year period. Its net loss came in at $2 million, down 97.7% from the prior-year period. SIX’s loss per share declined 98% year-over-year to $0.02. The company had $335.59 million in cash and cash equivalents as of January 2, 2022.

Past and Expected Financial Performance

Over the past three years, SEAS’ net income, EPS, and levered free cash flow have increased at CAGRs of 78.9%, 83.5%, and 43.5%, respectively.

SEAS’ EPS is expected to grow 32.6% year-over-year in fiscal 2022, ending December 31, 2022, and 4.7% in fiscal 2022. Its revenue is expected to grow 14.6% year-over-year in fiscal 2022 and 3.3% in fiscal 2023. Analysts expect the company’s EPS to grow at a 31.5% rate per annum over the next five years.

SIX’s net income, EPS, and levered free cash flow have decreased at CAGRs of 22.2%, 22.6%, and 1.8%, respectively, over the past three years.

Analysts expect SIX’s EPS to improve 58.7% year-over-year in fiscal 2022, ending December 31, 2022, and 13.4% in fiscal 2023. Its revenue is expected to grow 11.5% year-over-year in fiscal 2022 and 3.8% in fiscal 2023. Analysts expect the company’s EPS to decline at a 15% rate per annum over the next five years.

Valuation

In terms of non-GAAP P/E, SIX is currently trading at 18.24x, 14.4% higher than SEAS’ 15.94x. In terms of forward EV/EBITDA, SEAS’ 9.70x compares with SIX’s 11.27x.

Profitability

SEAS’ trailing-12-month revenue is almost the same as SIX’s. However, SEAS is more profitable, with a 53.1% gross profit margin versus SIX’s 48.8%.

Furthermore, SEAS’ net income margin, levered free cash flow margin, and ROA of 17.1%, 19.1%, and 11% compare with SIX’s 8.7%, 10.9%, and 8.8%, respectively.

POWR Ratings

While SEAS has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, SIX has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

In terms of Value, both SEAS and SIX are rated C, consistent with their lower-than-industry valuation ratios. SEAS’ 13.13x forward EV/EBIT is 12.9% lower than the 11.64x industry average. SIX has a 13.83x forward EV/EBIT, 18.8% lower than the industry average of 11.64x.

SEAS has an A grade for Quality, consistent with its higher-than-industry profitability ratios. SEAS’ trailing-12-month net income margin of 17.1% is 160.3% higher than the industry average of 6.6%. SIX has a Quality grade of B, in sync with its relatively lower profit margins. SIX has an 8.7% trailing-12-month net income margin, 32.5% higher than the 6.6% industry average.

Of the 15 stocks in the Entertainment – Sports & Theme Parks industry, SEAS is ranked #1, while SIX is ranked #3.

Beyond what we have stated above, our POWR Ratings system has also rated SEAS and SIX for Stability, Momentum, Sentiment, and Growth. Get all SEAS ratings here. Also, click here to see the additional POWR Ratings for SIX.

The Winner

A significant easing of COVID-19 restrictions and the introduction of multiple theme-based attractions and thrilling rides should allow both SEAS and SIX to grow. However, relatively lower valuations and higher profit margins make SEAS a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Entertainment – Sports & Theme Parks industry.

SEAS shares were trading at $65.15 per share on Wednesday afternoon, down $3.37 (-4.92%). Year-to-date, SEAS has gained 0.45%, versus a -5.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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