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Make Money by Having ‘FUN’ - Cedar Fair L.P.

August 10, 2009 | About:
Cedar Fair L.P. [NYSE:FUN] August 10, 2009: $10.64 - 2:50 PM EST

52-week range: $5.75 (Mar. 6, 2009) - $23.57 (Aug. 18, 2008)

Distribution = $0.25 quarterly = 9.39% current yield


Cedar Fair, L.P. is a master limited partnership that operates regional amusement parks. During the year ended December 31, 2008, the Partnership owned11 amusement parks, six outdoor water parks, one indoor water park and five hotels. The amusement parks include Cedar Point; Kings Island; Canada’s Wonderland; Dorney Park and Wildwater Kingdom (Dorney Park); Valleyfair; Michigan’s Adventure; Kings Dominion; Carowinds; Worlds of Fun; Knott’s Berry Farm, and California’s Great America (Great America). The Partnership also owns and operates the Castaway Bay indoor water park Resort in Sandusky, Ohio, and six separate-gated outdoor water parks.

Units of Cedar Fair (equivalent to shares) took a big hit in March when fears about debt refinancing led to investor panic. Management took steps to ease the problems including reduction of the distribution rate from $0.48 quarterly to $0.25.

Since the March lows FUN has rebounded to today’s quote of $10.64 /unit. This is still off by almost 55% from its 52-week high set last August. Even with the bad economy Zacks looks for earnings of $1.28 and $1.48 for 2009 and 2010 respectively.

That makes the multiple a very low 8.3x this year’s and 7.2x next year’s estimates. As a master limited partnership the tax rate is extremely low and the (already reduced) distribution rate is still a very attractive 9.39%.

Here are the per unit numbers from continuing operations as reported by Value Line:

Year..........Sales..........C/F...........EPS.........Distrib.......Avg. P/E......52-wk range

2002 .........9.95 ........2.24 ........1.39 .........1.65 .........16.7x .......19.60-24.80

2003 ........10.06 .......2.58 ........1.67 .........1.74 .........16.0x .......22.70-31.50

2004.........10.13 .......2.41 ........1.47 .........1.79 .........21.4x .......28.70-36.00

2005 ........10.57 .......2.68 ........1.61 .........1.83 .........19.0x .......25.70-34.00

2006 ........15.37 .......3.29 ........1.59 .........1.87 .........17.2x .......24.10-29.90

2007 ........18.19 .......3.20 ........0.79 .........1.90 .........33.9x .......20.60-30.70

2008 ........18.09 .......3.62 ........1.34 .........1.92 .........18.9x .......11.30-25.00

Just a glance at the chart will show you how cheap Cedar Fair is right now. The P/E is the lowest ever, the distribution rate is the highest and the units are priced below the lows from the entire period 1997 through 2008.

FUN units have actually traded for more than double their current price at some point in each of the past twelve calendar years.

Unless you believe the company will not survive the current recession these units look like compelling value. Value line sees FUN’s financial strength as an adequate ‘B+’. proceeds from a recently announced sale of excess undeveloped Canadian land for $50 million have been earmarked for debt reduction and cash flow appears steady.

A return to even thirteen times 2009 – 2010 projections would make for a

12 – 18 month target price range of $16 - $19. Value Line is using a 15 multiple and per unit earnings of $2.50 in calculating their 3 – 5 year projections for a rebound to $30 - $45.

FUN looks like a winner for outstanding total return for investors with a medium to long-term time horizon.

Note: Besides buying FUN units, I was able to sell March $10 puts for $1.35 /share and March $12.50 puts for $2.70 /share today giving me break-evens of $8.65 and $9.80 respectively.


Disclosure: Author is long FUN units and short FUN puts as described.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.TalkMarkets.com

Visit Dr. Paul Price's Website


Rating: 2.3/5 (4 votes)

Comments

dealraker
Dealraker - 4 years ago
Well stockdox,

You've got more ideas than I've got brain cells. I guess if you truly were a gifted investor you'd simply be managing your own money rather than spewing out these run-of-the-mill recommendations (on your aptly named site beatingbuffett- just got to smirk at that one).

Let me tell you a secret....

...most of the cheap stuff you write about is cheap for good reason. Making 200 calls a year however does give you benefit later of the selective recall of those that zoom upwards.
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago
dealraker,

If you'll go back through all my write-ups from the past year and actually work the numbers you'd see just how well the stocks and their related options have done.

My main account is up 80% YTD and my IRA (with zero leverage) is up 36% YTD. Both accounts were down over 20% at the March bottom.

Unlike most posters here (and elsewhere) I was an extremely aggresive buyer of stocks (and a seller of puts ) ever since around last Thanksgiving. There were very few other brave souls writing up stocks when prices were outrageously cheap back then. You'll also notice that i stopped buying stocks completely (and posted ZERO write-ups) from around last July right through late November when I saw the horrific market conditions were making winning trades impossible.

If you differ with any of my views on specific stocks or combination plays please tell me why. Just blasting me because I write up quite a few stocks is not meaningful.

I don't think I've ever seen anything from you at all in terms of what to buy or sell. Have I been missing alll your postings?
ConsumerMonopoly
ConsumerMonopoly - 4 years ago
Get off it. Let's share ideas. Thank you Stockdoc for your contributions.
Alex Garcia
Alex Garcia premium member - 4 years ago
Doc,

FUN has negative cash flow last 3 months, thoughts on that?
Dr. Paul Price
Dr. Paul Price premium member - 4 years ago
It's a seasonal business.

Cash flow comes mostly from the summer vacation months.

Please leave your comment:


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