SeaWorld Entertainment, Inc. is a theme park and entertainment company operating primarily in the United States. The company owns and operates U.S. theme parks, including the popular SeaWorld(R), Busch Gardens(R) and Sesame Place(R) brands. SeaWorld Entertainment, Inc. is headquartered in Orlando, Florida.
How did I come to look at the SEAS stock?
First, at this moment in time, I think most traders and investors are looking at 2021 with an optimistic outlook. My personal opinion for 2021 is optimistic as well.
Why?
- Basically the coronavirus situation it’s much clear now.
- Companies are starting to call employees back to work.
- The vaccine is coming.
I also think that we need to separate companies into two categories:
- Those who were affected permanently.
- Those who were affected temporarily.
Then the question is:
What stocks were affected temporarily by the coronavirus situation and have good upside potential for 2021?
SeaWorld definitely cannot be replaced with an app. :)
Basically, I was looking for a company that was affected by the lookdown but with the business model intact and hopefully taking advantage of this situation.
Just a little bit of history about the company, between 2014–2018 SEAS has a hard time, poor performance, declining earnings, and declining price.
The company reputation was challenged by the “Blackfish scandal“.
Then at the beginning of 2018, they starting to turnaround, and financial metrics start improving quite substantially and this was reflected in the price, as investors and traders appreciated the decisions made by the company.
Then the coronavirus lockdown hit the markets, the price goes down from 36$ to 7$ (-80%). Today the price is 23.82$.
I will not analyze in many details the financial metrics. Why?
- Those who understand financial metrics will look for data themselves on their platform of choice.
- Those who do not understand financial metrics, go on Investopedia.
But probably those who read this stuff have some basic understanding. I am not a “data cruncher” myself so it is what it is.
Let’s look at the last earnings call highlights ( Q2 / 2020 )
Highlights about the present situation:
As you all know, our second quarter financial results were significantly impacted by the global COVID-19 pandemic. As we previously announced, from March 16, 2020 to June 5, 2020, all of our parks were closed. Turning on June 6, we began the process of reopening some of our parks, beginning in Texas and then in Florida, and by the end of the second quarter, 7 of our 12 parks were open and operating with limited capacity, limited hours, and/or limited days.
Due to the park closures, our second quarter of 2020 had only a total of 7 parks partially open, with 98 operating days compared to a total of 12 parks fully open with 861 operating days in the second quarter of 2019. Attendance since the parks reopened in June has been impacted by capacity limitations due to COVID-19 social distancing guidelines, fewer operating days per week versus the prior year, limited marketing spend and a limited events lineup. Despite these limitations, total park attendance at parks that have been open for at least 30 days, has increased 15% on a same park basis from the week ended June 28, the first full week these parks were open, to the week ended August 2. While the future remains highly uncertain, based on what we have seen recently, we believe attendance trends compared to prior year will continue to strengthen as we reintroduce special events, interactive experiences, and other in-park offerings, which were temporarily suspended and we thoughtfully ramp up marketing spend.
Since the start of the third quarter, we have opened two additional parks, Sesame Place located in Langhorne, Pennsylvania and Busch Gardens Williamsburg located in Williamsburg, Virginia. Sesame Place opened on July 24 on a three-day a week operating schedule and we are pleased with their early performance. Since reopening, we have seen high demand and we are adding additional operating days.
Let me offer a few comments regarding our capital structure. We recently completed a $500 million notes offering and covenant adjustment that among other things further revise our financial covenants to suspend testing of the covenant through 2021 and modify the testing of the covenant in 2022.
Adjusting for the gross proceeds of the notes offering and related transactions, as of June 30, 2020, we would have had approximately $565 million of cash and cash equivalents on the balance sheet and $311 million available on our revolving credit facility, resulting in total liquidity of $876 million. By issuing these notes, we have significantly strengthened our balance sheet and liquidity position, providing us with enhanced operating flexibility, creating the ability to continue to make long-term investments in our business, and increased our capacity to take advantage of strategic opportunities that may arise from market dislocations.
Highlights about forward-looking perspective:
From a forward-looking perspective, we have seen some positive indicators. Our Discovery Cove park which accepts reservations up to 18 months in advance, is showing strong 2021 bookings and significantly outpacing prior year to-date. In particular, 2021 forward bookings for Discovery Cove as of August 6, 2020 are 176% higher than 2020 bookings as of the same time one year ago.
With respect to California, while we don’t have a park opening date for SeaWorld to announce today, we are in regular contact with state and local authorities and we sincerely look forward to opening in San Diego and welcoming back our guests as soon as it’s safe and permitted to do so. As we announced this morning, we do not currently plan to open up our Aquatica waterpark near San Diego or our Water Country USA waterpark in Williamsburg this year.
James Hardiman — Wedbush Securities, Inc. Thanks. And then, as I think about the path back to profitability. I’m assuming the parks that are currently open are profitable in their own right. Is there a way to think about sort of where they would be, assuming no more parks open from here, is there a way to think about how profitable those parks would need to be for you to get back to sort of breakeven from an EBITDA perspective?
Marc G. Swanson — SeaWorld Entertainment, Inc. Sure. So, you’re right. I mean, the parks that are open collectively, we — they’re operating pretty well. So, we feel good about the performance from those parks on a collective basis. Is it enough to offset debt and other things, not at this point. But as far as what we need to do to get to that point, I think we’d have to be in the range of 40% of the prior year. And there’s a lot of variables that would depend on your capital spend and whatnot. So, we need to see those parks do a little bit better. That’s our focus. I can tell you one of the things we’re really focused on is trying to drive to that kind of enterprise breakeven level, getting enough with the open parks to cover off our corporate overhead and debt service. And then, anything beyond that related to CapEx and whatnot, would be kind of more at our discretion.
Yeah. Hey, Jason. Its Marc. So, right now, the one big park that’s not open is California and so — SeaWorld San Diego. So, we are in touch. We work through the trade association out there, where we’re members, along with Disney and Universal and others. And so, we’ll continue to monitor that situation and hopefully get that park open, but we don’t have anything specific right now. And then, as I mentioned, the water park near San Diego, Aquatica, and then the Water Country USA in Williamsburg, we’re not going to open those parks this year. They have a pretty limited operating season, so to get them ramped up if they’re not allowed to be open really right now, just didn’t really make a lot of sense. And we’re obviously really disappointed with that and we know a lot of our fans are, but we’ll continue to monitor that whole situation, obviously.
Earnings call key takeaways:
- They were impacted by lockdown as expected, obviously.
- Some problems with the states that do not open up, but in my opinion, this is temporary, because at some point they need to open up.
- People will come and spend money if the parks are open, in spite of restrictions.
- They try to address the debt situation.
- Big improvement in reservations for 2021.
The Q3 2020 earning call is set to be on 05 Nov 2020 ( 12 days from posting ).
News that came after Q2 earnings call:
SeaWorld says in an SEC filing that it has “committed to a plan of termination, impacting some of the company’s furloughed employees,” without specifying how many workers were permanently laid off or which theme parks were affected.
But the company expects to record $2.5M-$3M in restructuring and employee severance costs during Q3.
Abu-Dhabi-based Miral says it has completed over 40% of its construction of SeaWorld Abu Dhabi.
The project is also the first new SeaWorld park in over 30 years and the first outside of North America.
In my opinion, these are very bullish news that is adding up for a strong bullish case for SEAS stock.
Opening up parks outside the US can be very profitable. I expect the operating margin for parks outside the US to be much higher than the current US operating margin. Of course, we do not have any nuance information about this at this point. One thing we can be sure of is that they will pitch this move to investors on the next earning call.
Risks / Rewards:
- Obvious the biggest risk is another lockdown or a prolonged coronavirus situation.
- The debt situation is a problem, but as we can see they are aware of that and try to address it. The latest action that they took is to lay off some employees to reduce the costs.
- If the coronavirus situation is improving in 2021, then I think the surprise is on the upside.
- The fact that in this kind of situation with lookdown and restrictions they are making moves to expand operations outside the US, gives me some confidence about future performance.
- The presidential election can have an effect on SEAS stock?
I think it can because the candidates have a slightly different approach to the coronavirus situation. Trump wants to open up as quickly as possible and in the case of Biden we do not really know, but he is on the defensive side of things.
- In terms of competition basically, nothing changed, the situation is the same as before coronavirus.
Competitors are Disneyland Parks and Resort, USA, Universal Theme Parks, USA, and Discovery Cove.
Before coronavirus SEAS company won ground against competitors and place themself in a strong position in the industry.
Conclusion:
In my opinion, SEAS is in a very good position for 2021.
From a trader perspective, I think the risk/reward is looking pretty good.
The chart image is for visualization purposes. Is not for timing the entry and exit positions.
Disclosure: I own SEAS shares.
