Cedar Fair - The Good News Keeps On Coming

| About: Cedar Fair, (FUN)
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I first recommended Cedar Fair L.P. (NYSE:FUN) late last Spring in an article on Seeking Alpha. At the time, the price was in the $18-$19 range and I especially liked the projected distribution (similar to a dividend) of $1 per unit that would produce a yield of more than 5% for 2011. There may have been some concern about the total distribution since the first two quarterly payouts in 2011 had only totaled eighteen cents and the all-important Summer season had yet to begin. Since then the partnership has had a significant amount of good news, and I have periodically written updates, most recently two weeks ago after the company announced a strong Summer season and re-affirmed its commitment to a $1 distribution. This past week, the good news kept coming.

Briefly, Cedar Fair is a limited partnership (LP) that owns and operates nearly a dozen amusement parks with several in Ohio and California. They include Knotts Berry Farm, located not far from Disneyland, Dorney Park in Eastern Pennsylvania and others in Canada, Virginia, Minnesota and elsewhere. FUN also owns five hotels and a-several water parks. As an LP, Cedar Fair pays a "distribution" rather than a dividend and reports earnings on a Form K1 rather than a 1099.

On September 19th a press release was issued announcing the sale of one of its smaller properties in northern California for $70 million in cash. According to the release the proceeds received at closing are expected to be applied to the Company's senior secured debt under the terms of the Company's credit agreement and will immediately de-lever the balance sheet resulting in additional financial flexibility. The same day as the announcement of the sale, Standard & Poors revised its ratings outlook. An AP article noted:

Standard & Poor's Ratings Services on Monday revised its rating outlook on Cedar Fair LP, citing plans by the amusement park operator to pay back its secured debt with the proceeds from the sale of one of its parks.

The ratings firm raised its outlook on the Sandusky, Ohio company to "positive" from "stable." In addition, it affirmed its ratings on the company, including its "B+" corporate credit rating.

Two days later, according to StreetInsider.com, Wells Fargo reiterated an 'Outperform' on Cedar Fair with a price target range of $24-$26. The Wells Fargo report noted:

(1) attractive total return potential of 35-45% through 2012 (23-33% appreciation plus 11.8% distribution yield--$0.70 in Q4 2011E and $1.60 in 2012E),
(2) improving underlying fundamentals including incremental revenue options from new President/CEO Matt Ouimet (formerly with Disney(NYSE: DIS)/Starwood (NYSE: HOT)) that should flow largely to EBITDA,
(3) defensive nature of regional theme parks offering consumers an attractive vacation value, and
(4) announced accretive sale of San Francisco park that will enhance financial/distribution flexibility.

We believe our outlook for low-single-digit revenue growth (excluding pending sale of Great America) in 2011/2012 remains reasonable given (1) solid Aug YTD results (2) recent management commentary and (3) uncertain degree of economic recovery.

I remain long Cedar Fair because of the cash distributions which are expected to total $1 for 2011 (exceeding 5%) based on a $0.70 projected payout in Q4. The LP also has projected payouts for 2012 of $1.60 and $2 for 2013. In today's low interest environment, even maintaining the $1 distribution makes this an attractive investment. If the higher levels are realized, whether partially or fully, I view that as a terrific added bonus.

Disclosure: I am long FUN and DIS and have no plans to buy or sell shares in the next 72 hours, although I may write covered calls against my position at any time. I have no positions in any other companies mentioned.