Why SeaWorld Entertainment Stock Rallied as Much as 22% at the Open Today


What happened

Shares of amusement park operator SeaWorld Entertainment (NYSE:SEAS) rose a dramatic 22% in early trading on Feb. 25. Although the large early gain didn’t hold, the stock was still higher by roughly 10% at 10:30 a.m. EST. The story was all about earnings.

So what

The fourth quarter of 2020 was not kind to SeaWorld. Attendance at its parks fell by 2.5 million guests in the final three months of the year to 2.2 million, a year-over-year decline of more than 50%. Revenues tallied $154 million, a 48% drop. The company’s quarterly loss of $0.58 per share represented an increase of roughly 87% over the $0.31-per-share loss in the final quarter of 2019. The company’s business is highly seasonal, so it generally loses money during the cold months when only some of its parks are open. Still, the company’s financial results were pretty dismal reading.  

A young boy and girl on a merry-go-round.

Image source: Getty Images.

But investors were obviously expecting worse because they sent the shares higher on the news. Wall Street analysts were definitely looking for a more negative outcome, given that the consensus call was for a loss of $0.69 per share. Still, despite the analyst estimate beat, the coronavirus pandemic has been brutal for companies like SeaWorld that provide group-based entertainment. Government calls to shut down nonessential businesses and practice social distancing have clearly resulted in a material decline in attendance, revenues, and earnings here. However, the 2.2 million guests SeaWorld served in the quarter were a vast improvement over the 1.8 million who passed through its gates in the third quarter of 2020, a period when more total guests would normally be expected. So the news that investors are excited about today is most likely that SeaWorld’s business appears to be improving, which, along with the above-consensus earnings, was enough to give the stock a quick price lift.  

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Now what

A lot more recovery is needed here before SeaWorld’s business is back to normal, which probably explains why the big early gains didn’t hold. While the improvement is nice to see, the results indicate that the recovery is still in its early days. And, frankly, a lot still depends on how well the world manages to deal with the coronavirus and its new variants. Conservative long-term investors will probably be better off on the sidelines, though aggressive investors looking for a turnaround play might want to start paying closer attention. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/02/25/why-seaworld-entertainment-stock-rallied-as-much-a/

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