Six weeks ago Cedar Fair LP (FUN) was trading at $25.55 and was recommended on this site. At that time it had fallen from its 52 week high of $31.74 and its $1.60 distribution was yielding 6.26%. Earlier this week the price reached a seven year high when it traded as high as $32.50 per unit. Is it still a great buy?
Jim Cramer seems to think so. In a recent interview with Cedar Fair CEO Matt Ouimet, Cramer said it still "has a lot more upside." Cramer could be correct, especially after the partnership announced:
that preliminary revenues through the Fourth of July holiday weekend were approximately $456 million, an increase of more than $20 million, or 5%, when compared with the same period a year ago.
After running up more than 27% since early June, and with the yield falling below 5%, I am somewhat less enthusiastic.
There are many things working for Cedar Fair right now. The company has instituted premium priced packages, increased the sales of season passes, is largely insulated from the European sovereign debt issues, benefits from falling gas prices and is projecting a payout of more than $2 per unit in 2013. So, with all these benefits and the strong start to 2012, why am I less bullish than Cramer?
The Fourth of July typically represents a point in the year when one third of the company's annual revenue has been realized. The weather was outstanding in June and through the Fourth of July period cited in the press release, and Cedar Fair benefits from good weather. And, although its water parks benefit from hot weather, too much hot weather can also be a detriment. Record temperatures across the country could curtail park attendance. Who wants to stand in long lines while the temperatures soar past 100 degrees?
I have no doubt that Cedar Fair will report a strong second quarter. With both attendance and in-park spending posting solid gains, it is obvious that some of the new initiatives are paying off and that the company should again post record revenues and attendance for 2012. And, of course, there is the yield.
Investors should find the current yield of just under 5% attractive in today's low interest rate environment. Ouimet continues to reiterate a payout of more than $2 in 2013, so there is an even better yield of just over 6% to look forward to in 2013. While these numbers are attractive, they are significantly below the 6.26% and nearly 8% yields available when I was much more enthusiastic about Cedar Fair. I will continue to hold and reinvest the distributions, but will otherwise refrain from committing additional new capital to Cedar Fair at these 7 year highs.
Disclosure: I am long FUN.