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Why Six Flags Entertainment is so profitable

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Nov. 20 2019, Updated 1:02 p.m. ET

Earnings growth

Six Flags Entertainment Corp. (SIX) has grown its profits through the execution of its strategy to generate $600 million of modified earnings before EBITDA (interest, taxes, depreciation, and amortization) by 2017.

Let’s look at why Six Flags Entertainment is profitable. Six Flags’ adjusted EBITDA stood at $429 million for the last 12 months (or LTM) ended September 30, 2014. Six Flags Entertainment’s adjusted EBITDA grew at a compounded annual growth rate (or CAGR) of 19.7% over the four-year period since 2009.

The above chart shows that Six Flags’ LTM modified EBITDA margin grew to 40.7%. During the same period, adjusted EBITDA for Cedar Fair (FUN) grew at a CAGR of only 7.7%.

ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY), the Vanguard Consumer Discretionary Index Fund (VCR), and the iShares U.S. Consumer Services (IYC) provide overall exposure to the leisure companies.

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Long-term goal

Six Flags Entertainment’s (SIX) long-term goal is to achieve $600 million of modified EBITDA by calendar year 2017, which equates to nearly $3.75 of cash earnings per share (or EPS) as shown in the above chart. During the 12 months ended September 30, 2014, the company generated $467 million of modified EBITDA and $2.51 of cash EPS.

Management comments

John Duffey, CFO of Six Flags Entertainment, said, “Our new 2017 target of $600 million of modified EBITDA allows us to invest appropriately in the business, continue paying a sustainable, growing dividend, and execute on our share repurchase program.”

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