Investors rally as Jefferies backs Six Flags with a $59 target

In a significant development within the amusement park industry, Jefferies analyst David Katz has initiated coverage on Six Flags Entertainment Corporation, providing the company with a Buy rating and setting a price target of $59.00 per share. This action comes in the wake of the merger between Six Flags and Cedar Fair, which was finalized on July 1, 2024, resulting in the formation of the new combined entity known as Six Flags Entertainment Corporation. The merger is seen as a strong long-term opportunity, primarily driven by Cedar Fair’s management, which is expected to unlock considerable earnings potential for the new company. Katz emphasizes that the integration process is projected to be smooth due to the minimal geographic overlap between the parks of the two companies, thus facilitating operational coherence and efficiency post-merger. The analyst foresees the newly formed company achieving at least $200 million in synergies. This figure breaks down into $80 million in incremental revenue and $120 million in cost savings expected to be realized by the end of the 2026 fiscal year. The synergy projections are enhanced by execution opportunities that lie in technology, labor, marketing, and operational improvements that the new management can leverage easily. Katz also suggests that the company's net debt/EBITDA ratio will cap at approximately 5x by the end of 2024, and he regards their separate target of <3.5x by the end of 2027 as conservative, predicting that they could meet this target as early as 2026. Katz anticipates modest EBITDA growth for fiscal years 2025 and 2026, along with a robust generation of free cash flow totaling over $1.5 billion from the fourth quarter of fiscal year 2024 through to the end of fiscal year 2026, with a commitment from the company to invest 12%-13% of their revenue on capital expenditures. In the context of recent financial performance, Six Flags reported an adjusted earnings per share figure of $2.10 for the third quarter, which fell short of the street consensus of $3.39, although quarterly sales came in at $1.348 billion, surpassing the analyst consensus estimate of $1.339 billion. These financial results highlight the challenges the company may face despite the optimistic projections surrounding the merger. Investors are encouraged about potential exposure to Six Flags stock through investment vehicles like the Invesco S&P SmallCap Consumer Discretionary ETF PSCD, particularly as analysts paint a favorable picture of long-term potential for the new company under Cedar Fair's management guidance.