Sunday, August 28, 2005

A Not So Great Adventure
Six Flags Inc
Ticker: PKS
Market Cap: $670 million
Price: $7.20

Avid Cheap Stocks readers know how much your editor thrives on land related stocks, even those that are indirect plays. There is one company in particular that I’ve followed for years, but could never commit to. For good reason. As it turns out Six Flags Inc has gotten a lot of press lately. But we here at Cheap Stocks, are staying away from this one.

I really wanted to like this company. They own 30 amusement parks. That’s right, 30 cash generating machines. At least I thought they should generate lots of cash-if you’ve ever taken your kids to one of these parks, you’ll know what I mean.

Not this company, though. They’ve lost money year after year—they are usually profitable the second and third quarter each year as this is a seasonal business, but that is not enough to make up for losses the rest of the year. Much of the problem is that the company is swimming in long-term debt to the tune of more than $2.4 billion. That translated into $195 million in interest expense in 2004, down from 2003’s $215 million.
The company’s debt to equity ratio is nearly 4. Not a pretty capital structure. All this translates into an Altman’s Z score that indicates this company may be a candidate for bankruptcy if something does not change.

Enter Washington Redskins owner Daniel Snyder, who last week offered $6.50 per share in a tender offer bid aimed at tripling the stake that Snyder controlled Red Zone LLC has in the company to about 35 percent. That drove shares of Six Flags into the mid $7 range. But Thursday, the company announced that it opposed to Snyder’s plan, and will instead put itself up for auction. Good luck Six Flags. Good luck current common stockholders. We are staying on the sidelines.

If you want exposure to the amusement park arena, there’s always Walt Disney (Ticker:DIS). You may also want to take a look at Cedar Fair LP (Ticker: FUN), a seemingly well run and profitable company paying a dividend. The antithesis of Six Flags?

Real Estate Update

Your editor was at it again this week. If you’ve read about my real estate investing adventures—in publicly traded companies such as JG Boswell, St. Joes, Avoca, PICO, and Tejon Ranch—you won’t be disappointed in our coverage over the next several weeks. Two companies added to the portfolio, one giving exposure to Hawaii, the other to 8.1 million acres of timber in more than 20 states. Stay tuned.

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