The recent merger between Six Flags and Cedar Fair has given rise to a new titan in the world of amusement parks: Six Flags Entertainment Corporation (NYSE: FUN). With an expected annual revenue of $3 billion, this new entity boasts 27 theme parks and 15 water parks. While it is still no rival to current champion Disney (NYSE:DIS), whose parks and experiences generated nearly $32.6 billion in revenue in 2023, the combined company aims to build on its growing momentum to bolster its scale.
Beyond popular buzzwords like “synergy,” the newly formed corporation projects approximately $120 million in cost savings and $80 million in increased profits within three years as combined entities, suggesting upside potential from current valuation levels. This stock is an intriguing option for investors seeking a pure-play on amusement parks.
What to Know About the Six Flags Merger
Six Flags Entertainment Corporation is now the largest regional amusement park operator in North America following a successful merger with Cedar Fair Entertainment Company. This merger significantly expanded Six Flags’ reach, solidifying its position as a premier amusement park operator in the U.S., Canada and Mexico. The combined entity, operating under the Six Flags brand, will continue to provide entertainment experiences with an impressive portfolio of 42 parks.
Effective July 1, 2024, the merger agreement provides that Cedar Fair unitholders will receive one share of Six Flags Entertainment Corporation common stock for each unit held, while former Six Flags unitholders will receive 0.5800 shares of the newly merged entity’s common stock for each share held.
While it’s been hailed as a “merger of equals,” the combined company’s management structure suggests otherwise. Analysts following the merger have viewed Cedar Fair’s management team as the steady hand that Six Flags’ assets have needed for some time.
Cedar Fair’s management team will essentially take over operations of the combined entity under the leadership of CEO Richard Zimmerman (former president and CEO of Cedar Fair). In contrast, Selim Bassoul, former president and CEO of Six Flags, will join the board and serve as the board’s executive chairman.
Is FUN stock a good buy?
Since the merger, two analysts covering the company have weighed in, and both have been constructive on the stock. Citi analyst James Hardiman issued a Buy rating on the stock with a $64 price target, while Oppenheimer analyst Ian Zaffino issued an Outperform rating and a $67 price target. Both analysts noted significant upside potential from this merger.
Six Flags Entertainment Corporation is rated an overall Moderate Buy based on the combined recommendations. The average price target for FUN shares is $65.50, representing a 13.66% upside potential from current levels.
With a trailing twelve months (TTM) P/E ratio of 23.77x, the stock appears to be trading at a discount to its leisure industry peers, which sport an average P/E of 28.02x. If the combined entity’s management can indeed manage costs while improving revenues, the stock is poised for significant multiple expansion.
Six Flags in Summary
The merger between Six Flags and Cedar Fair has created an attractive investment opportunity for those interested in the sector. With Cedar Fair’s leadership at the helm, there is optimism about cost management and revenue increases, which could catalyze a promising potential upside in the stock from the current undervaluation.
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