The corporate needed to shut its whole community of theme parks as a result of Covid-19 pandemic. Nonetheless, traders have been rewarded with a acquire of practically 270%.
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This story initially appeared on MarketBeat
Six Flags (NYSE: SIX) studies earnings on February 24 and the information is just not more likely to be good. Analysts forecast adverse earnings per share (EPS) of $1.02 on income of $87.04 million. The whisper quantity places the EPS barely decrease at ($1.10). Does this sign that the corporate’s robust run is over?
Many traders would have seen Six Flags as an untouchable inventory in 2020. The corporate needed to shut its whole community of theme parks in response to the Covid-19 pandemic. Nonetheless, traders that purchased SIX inventory on the depth of the pandemic have been rewarded with a acquire of practically 270%. And the corporate’s main competitor Cedar Truthful (NYSE: FUN) is up 256% in the identical interval.
This isn’t only a contrarian play. Six Flags efficiently labored with its lenders to renegotiate key leverage covenants. It will be sure that the corporate can efficiently reopen with some further time to get well from the results of the pandemic.
Does a Template for Reopening Exist?
Some consider that Disney’s (NYSE: DIS) reopening of Walt Disney World in Florida can present a template for Six Flags to reopen. Remember, whilst extra individuals are vaccinated, public well being specialists are cautioning that most of the measures that have been taken through the pandemic should still be required because the nation reopens.
And the truth is that many potential prospects will demand that theme parks take these measures even when the fast risk of the pandemic is lengthy gone.
Disney has largely been praised for the measures it has taken. And, though that is tough to conclusively show, there was no direct proof that the re-opening of Disney World has led to group unfold.
The Simple Good points Are Gone
Nonetheless, placing the debt problem apart, many of the inventory’s acquire is in anticipation that the corporate would be capable of reopen its parks for the 2021 season. And the corporate is planning on doing simply that. Nonetheless, with the replenish 270% from its pandemic lows, the simple positive factors could also be gone.
To justify an extra rise within the firm’s inventory worth, traders will need to see how a lot site visitors will return. If the analysts’ estimates are correct, Six Flags will ship full-year 2020 income of roughly $337 million. With the parks re-opening, the corporate is sort of assured of seeing larger income numbers. However it’s unlikely that it will likely be in a position to strategy the $1.48 billion that Six Flags posted in 2019.
And traders aren’t more likely to begin getting that information till the second quarter. Six Flags is a predictably seasonal enterprise, and the primary quarter is traditionally a weak quarter. That would be the identical for this yr as a result of parks received’t be reopening till the spring.
Wait For Extra Information Earlier than Including to Your Place
With the inventory trying overbought, I feel SIX inventory is more likely to drop post-earnings as traders look to take income. The inventory is sort of 30% beneath its excessive worth for 2019 even though income is unlikely to approximate these ranges.
Nonetheless what ought to occur and what’s going to occur are two various things. Though I consider the simple positive factors are gone, merchants nonetheless maintain bullish sentiment on SIX inventory. The inventory closed at a brand new 52-week excessive on February 22, however the relative energy indicator (RSI) suggests the inventory is overbought. That bullish sentiment could change after the earnings report. Buyers will need to hear extra in regards to the firm’s steering relating to reopening.
I’d have an interest within the inventory if it will get between its 20-day and 50-day easy transferring common. That will put the inventory about the place it was to begin.