Why Six Flags Entertainment Stock Just Popped
Key Points
Activist investor Jana Partners urges Six Flags to sell itself to a "known buyer."
Six Flags is in the middle of a turnaround effort that aims to cut costs and improve the business.
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Six Flags (NYSE: FUN) stock soared 7% through 11:25 a.m. ET Tuesday, after Reuters reported there's an activist investor push brewing to get Six Flags to sell itself.
This news comes less than two weeks after Six Flags stock surged on news of a more limited sale -- of seven Six Flags amusement parks.
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Sell Six Flags in bits and pieces -- or all at once?
Six Flags' big boost earlier this month came from its announcement that selling seven "non-core" parks would raise $331 million, which Six Flags could then reinvest in its more profitable parks. In an analyst note urging investors to buy the stock, Stifel analyst Steven Wieczynski noted that the sale would also lighten Six Flags' capex load, thereby cutting costs while boosting profits.
It seems that's not good enough for some investors, though.
As Reuters reports today, activist investor Jana Partners is pushing Six Flags' board to "reverse course" on its turnaround efforts, and instead "engage with known buyer interest in Six Flags."
What's next for Six Flags?
Would that be a good idea? Valued at $1.7 billion in market capitalization, but carrying about $5.3 billion in net debt, Six Flags stock has an enterprise value of about $7 billion. That gives the stock a price-to-sales ratio of about 2.25x.
That's almost exactly the same valuation given to the 800 lb. gorilla of the amusement parks industry, Walt Disney (NYSE: DIS). But Disney is a profitable business, earning $12.2 billion on its revenue last year. Six Flags is not profitable.
Granted, cutting costs and improving sales by reinvesting in the business could improve Six Flags' business. But it might also fail. Given the risk, selling Six Flags outright might be the smarter call.
Should you buy stock in Six Flags Entertainment right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Six Flags Entertainment and Walt Disney. The Motley Fool has a disclosure policy.
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