Is the Tide Turning for SeaWorld?

05/04/2016 8:00 am EST

Focus: STOCKS

George Putnam

Editor, The Turnaround Letter

Our latest turnaround idea is one of the largest theme park companies in the US, with 11 parks including SeaWorld destinations, two Busch Gardens parks, Sesame Place and others, explains George Putnam, editor of The Turnaround Letter.

SeaWorld Entertainment (SEAS) was founded in 1964 in San Diego; its total attendance in 2015 exceeded 22 million guests. Park admissions produce 62% of total revenue, with the balance generated from food, merchandise and other revenue.

SeaWorld’s widely acclaimed shows featuring killer whales (orcas) have been under attack since the 2013 movie Blackfish alleged significant shortcomings in the company’s treatment of their orcas. 

The firm created even more problems by handling the fallout from the Blackfish video poorly. Further, they allowed their focus to shift away from meeting strong competition in many of their key markets.

Concerned about SeaWorld’s future, investors fled the stock. The stock now trades well below its initial public offering price of $27, and it is down about 45% from its 2013 high around $39.

Recognizing that their company’s future was at stake, SeaWorld brought in a new CEO, Joel Manby, in April 2015. He, in turn, has beefed up the management team to carry out his vision.

Manby brings a tremendous amount of experience and success, having built Herschend Family Entertainment into the nation’s largest family-owned theme park company during his 12-year tenure as CEO. 

At SeaWorld, he appears poised to produce similar gains. Most significantly, SeaWorld recently took decisive action by ending all breeding of orcas as well as phasing out the orca theatrical shows. 

Management expects the crowds to return to their 2013 attendance levels, with sales and earnings recovering as well. 

SeaWorld shares trade at a reasonable 17x expected 2017 earnings and a low 8.3x expected cash flow. The 3.9% dividend yield is appealing. 

Private equity giant Blackstone holds a 21% stake, helping to keep management focused on their shareholder-oriented goals. We recommend purchasing the shares of SeaWorld Entertainment up to $27.

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By George Putnam, Editor of The Turnaround Letter

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