Six Flags (NYSE: SIX) Gets A Much Needed Breath Of Life

After an eight-year run that sent shares up more than 800% through the summer of 2018, investors of theme park Six Flags (NYSE: SIX) must have been optimistic about closing out the decade strong. However, then came a few missed earnings reports in the second half of 2018 and before they knew it, shares were down 40% from their all time highs as they rolled into this year.

Any hopes of a strong bounce-back went out with a whimper as the coronavirus pandemic took hold of the economy, with theme parks among some of the first casualties. Like cruise stocks and casinos, they’re synonymous with large crowds of people socializing together and so an easy target for the authorities. Things got pretty bleak in February as shares traded at 2010 levels and were basically flat for the full decade they’ve been publicly trading.

Any early investors who’ve hung around that long or those who have gotten involved since are going to need bundles of patience. No matter what happens with COVID, it will be a while yet before Six Flags shares are back close to all time highs. But that doesn’t mean there aren't opportunities to be had in the meantime.

Fresh Upgrade

On Friday, Goldman Sachs crossed the stock off their Sell list and gave them a fresh Neutral rating. Six Flag shares have been consolidating in recent months so this will be viewed as a much welcomed positive headline by management. Analyst Stephen Grambling thinks that most of the downside has been baked into current prices and that while near-term headwinds remain, the risk/reward profile is becoming attractive.

Even as we head into what is traditionally the slower fall and winter months for theme-parks, the growing prospect of a COVID vaccine is helping investors get out of bed in the morning. And with Disneyworld locations in Florida already reopening, there’s a template for Six Flags to build their own grand reopening around as well. With kids heading back to school, maybe the quieter months ahead offer a good opportunity for Six Flags to dip the toe back in with some soft reopenings. Their bank account sorely needs it.

Q2 earnings at the end of July showed revenue was down a full 96% year on year, easily helping to explain the catastrophic drop that had occurred in share price over the previous months. But having all parks closed since the middle of March has given management plenty of time to knuckle down and see what they can do to survive. In August they announced a lifeline in the form of an amended credit facility which allows them to push out commitments with lenders and affords them some breathing room.

Looking Ahead

As CEO Michael Spanos said with the news, "the operational actions we have taken to respond to the COVID-19 crisis, coupled with the one-year extension of both our covenant waiver period and the incremental revolving credit facility commitments, provide us with significant flexibility and financial strength as we manage through the pandemic-related disruption."

Investors getting involved at these levels will have their sights set on parks being reopened and operating at close to full capacity by next summer. Any positive updates from the dozens of ongoing COVID vaccination trails will add fuel to the fire and help drive shares on. Similarly, disappointments and setbacks with regards to reopening plans will make even the most risk-hungry investor look elsewhere.

That being said, there’s decent support around the $17 mark and it looks like shares are starting to tighten up their range in a narrowing pennant. This usually foreshadows a breakout and the optimistic investor will be betting that it’s to the north.