Six Flags (SIX) Surges Despite EPS Miss As Pricing Change Weighs On Attendance
1:54 pm Thursday, November 10th, 2022
Six Flags (SIX) is surging today following its Q3 report this morning. The numbers were not that great, but we think investors understand that this is a transition year for Six Flags, so maybe they are cutting them some slack.
In addition to earnings, SIX also announced it amended its cooperation agreement with major shareholder H Partners, which now allows H Partners to acquire up to a 19.9% stake in SIX, up from a prior cap of 14.9%. This seems to be adding a push to the stock. Another catalyst seems to be the big drop we are seeing in rates today following the benign inflation data. SIX has a lot of debt, so lower rates are good for them.
Recall that Selim Bassoul took over as CEO in November 2021 and he has been making some radical changes. Six Flags is shifting its focus toward a premium guest experience and is moving away from its decades-long strategy of heavy price discounting. It sounds like it is going more toward the Disney model. They know the higher prices will hurt attendance but they are willing to bet consumers, and especially families with kids, will pay more for a more premium experience.
The H Partners news is probably moving the stock more than earnings. Clearly, investors love to see it when a sophisticated investment firm, which knows SIX very well and has a seat on the board, sees value down here and wants to buy more shares.
Overall, investors should understand that there will be some pain associated with making such a radical change in pricing strategy. However, we think this is probably the right way to go over the long term. Other regional parks charge more than SIX, so there is a market at these price points. Investors should understand this is a transitional year for Six Flags and many of its customers are probably shocked at the higher prices, especially its teenage audience. But that is ok, families with kids tend to spend more at the parks and that is who SIX wants to focus on.
