Six Flags Entertainment (NYSE:SIX) was lifted to Buy from Hold, with a new price target of $32 per share, up from $25 by Jefferies on Monday.
Analysts told investors that the merger of Cedar Fair L.P. (NYSE:FUN) and SIX "materially increases value for SIX holders." Earlier this month, it was revealed that the amusement park companies are merging in an approximately $8 billion deal, creating a theme park powerhouse across North America.
"The combined entity is expected to generate $1.2B of EBITDA, including the $200M synergy target, with mid-3X leverage. Based on the current
expense base of SIX of $900M-$1.0B excluding D&A and SG&A at SIX of ~$200M, we believe the synergies should be achievable," the analysts explained.
"Our view is that SIX bears considerable opportunity for cost and pricing efficiencies, with data-driven operating and consumer engagement opportunities," they added.
The analysts also commented that the deal and timing make sense, especially for SIX, which has struggled with its operating model while "FUN has executed more consistently."
"The geographic redundancy is minimal and offers scale benefits, the synergies are credible and imply considerable value with unaggressive 9X EBITDA, 11X FCF price target assumptions," said the analysts.