You're Tall Enough to Ride Amusement Park Stocks

Six Flags (NYSE: SIX  ) hit an all-time high yesterday, a day after posting better-than-expected quarterly results in a blowout performance. Revenue climbed 32% to $87.5 million, fueled by a 41% spike in attendance. The regional amusement park operator's net loss narrowed to $1.23 a share. Analysts were buckled in, braced for a deficit of $1.46 a share on $68.2 million in revenue.

Now let's hit the brakes for a reality check. Why were analysts aiming so low? Many schools that had spring break vacations in April of last year shifted to March this time around. Six Flags attributes the shift in school holidays for half of its attendance gains.

It's also important not to get too excited here. This is a regional amusement-park operator, and most of its properties were closed during the quarter. The real test for Six Flags and rival Cedar Fair (NYSE: FUN  ) -- which reports in two weeks -- will be the next two quarters as summer kicks in.

Six Flags is still doing a lot of things right. It has repurchased 6.1 million shares -- or 11% of its shares outstanding -- so far this year. This may inflate the first quarter's loss on a per-share basis, but it's going to have a similar impact in propping up earnings during the balance of the year.

Buybacks and keeping a healthy payout -- Six Flags is currently yielding 5.1%, rivaling Cedar Fair's generous 6% rate -- do come at a price. Net debt at Six Flags has ballooned to nearly $1.3 billion.

However, with the economy improving, it's easy to understand why Six Flags is comfortable with its leveraged situation. Last week's well-received SeaWorld Entertainment (NYSE: SEAS  ) IPO and a fresh all-time high for theme-park juggernaut Disney (NYSE: DIS  ) today validate the attractiveness of buying into park operators these days.

Expectations are high that this will be a strong summer for all of its players. The market may be overreacting to Six Flags' healthy first-quarter performance, but the bullish sentiment is spot-on.

Photo: El Toro at Six Flags Great Adventure by K Whiteford.

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