It’s likely to be a long, hot summer for theme-park investors.
With the housing market a mess, gas prices soaring and the cost of food prices hitting consumers in the wallet, analysts continue to fret that the key summer season for amusement parks will be a roller coaster ride in and of itself as attendance and revenue fall.
Though the parks business is holding up so far, a shaky economy could pose a real threat to the earnings and stocks of park operators like kingpin Disney, Universal Studios parent General Electric and publicly traded pure-play companies like Six Flags and Cedar Fair.
Anticipating a bumpy ride ahead, Pali Capital analyst Richard Greenfield last week downgraded his rating on Disney – which he expects to generate over 20 percent of its 2008 earnings from parks – to “neutral” from “buy,” citing uncertainly around the business. Disney closed at $33.23, off 38 cents. Year to date, it is up 2.94 percent.
“We find it hard to believe that weak consumer confidence will not begin to have an impact as we move into fall 2008,” he said in a recent note.
Disney thus far has been able to avoid problems thanks to an early Easter holiday in March and strong business from foreign tourists, who’ve been buoyed by a weak dollar and are staying longer at the parks and spending more.
The company also has been wringing more dollars out of its parks by retaining more visitors at its onsite resorts and upping prices of services such as stroller rentals.
“While we don’t know where the marketplace will take us, we believe we are much better positioned in a difficult economic cycle than we were in the past, certainly back in 1991,” Disney boss Bob Iger said on the Mouse House’s latest earnings call.
But Greenfield expects that reports of a reduction in the number of domestic flights going in and out of Orlando, Fla., will ultimately catch up with the company despite its resilience to the economy.
Signs of worry are already emerging for Universal’s theme parks, with GE recently reporting slowing growth in its latest quarter, even with the bonus of an early Easter.
GE closed at $30.43, off 58 cents and off 17.91 percent year to date. For park operators catering to more regional customers like Six Flags, analyst opinions of the economy’s impact on attendance is more mixed.
Six Flags closed at $1.99 off 3 cents. Year to date, shares are down $1.97 percent. Cedar Fair closed at $23.09, down 20 cents. Year to date, the stock is up 9.28 percent.
“Despite high gas prices and an uncertain national economy, Americans continue to seek out lower-cost, regional entertainment options that are closer to home,” said Sanders Morris Harris analyst David Miller.