Oppenheimer just released a super bullish report on Six Flags after visiting their headquarters in Dallas Texas. Here’s their argument:We believe SIX has the opportunity to increase modified EBITDA margins to 35% by the time it exits 2011, vs. an average of 26% during the 2007-2009 time frame. Margin improvement could come as new management cuts costs, improves attendance yields and renews its focus on “theme-park basics,” vs. the brand-building and entertainment conglomerate strategy that existed under previous management. Further, a recently disclosed compensation agreement, dubbed Project 350, outlines how the new management team could be significantly compensated if it achieves certain EBITDA targets in 2011. If it merely hits the low end of the Project 350 range ($330 million of EBITDA), we estimate free cash flow could reach $6/share in 2011, as a $1.3 billion NOL shields earnings and cap-ex remains well below depreciation.
Here’s their outlook now:
- They’ve bumped up the 2011E EBITDA from $335 million to $340 million.
- Set EBITDA from 2012 to $360 million.
- Target price of $84
Oppenheimer cites some risks including the economy, seasonality, labour costs, competition, and a debt leverage of ~4.8x. Still, they think the 2011 EBITDA could even reach their “aspirational” target of $350 million.
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