CEDAR FAIR L.P. $53 (New York symbol FUN; Income Portfolio, Consumer sector; Units outstanding: 56.0 million; Market cap: $3.0 billion; Price-to-sales ratio: 2.6; Dividend yield: 5.7%; TSINetwork Rating: Average; www.cedarfair.com) began operating in 1987 and is now one the world’s largest amusement park operators. Its parks attracted more than 23.3 million visitors in 2014.

Its flagship park is Cedar Point, in Sandusky, Ohio, which was first developed as a recreational area in 1870. Other major parks include Knott’s Berry Farm near Los Angeles, Kings Island in Cincinnati, Dorney Park in Pennsylvania and Adventure in central Michigan. In 2006, Cedar Fair expanded outside the U.S. for the first time when it purchased Canada’s Wonderland near Toronto.

In all, it owns 11 amusement parks, three outdoor water parks, one indoor water park and five hotels.

Strong rebound after recession

The partnership’s revenue rose 18.6%, from $977.6 million in 2010 to $1.16 billion in 2014. Its revenue should reach $1.2 billion in 2015.

Cedar Fair lost $0.57 a unit (or a total of $31.6 million) in 2010, mainly due a $62.8-million writedown of aging amusement park rides and a $35.3-million charge on the early retirement of debt. Earnings then swung to a profit of $1.29 a unit (or $72.2 million) in 2011 and rose to $1.95 a unit (or $109.2 million) in 2014. Cash flow per unit increased 71.3%, from $2.44 in 2010 to $4.18 in 2014.

To attract to new and repeat visitors, Cedar Fair continues to invest heavily in new rides and attractions. It spent $166.7 million on capital projects in 2014 and will likely spend a further $130 million to $135 million in 2015.

Better hotels will attract more visitors

The partnership’s hotels are another growth area. In the first half of 2015, out-of-park revenue (including hotels, food and merchandise) rose 10.5% from a year earlier. That’s mainly because it recently renovated a hotel at Cedar Point.

Cedar Fair’s sound balance sheet will let it continue its upgrades. As of June 30, 2015, its long-term debt was $1.6 billion, which is a manageable 53% of its market cap. It also held cash of $35.4 million.

The partnership also aims to spur its growth with initiatives beyond new attractions. For example, it’s placing more emphasis on all-season passes and dining
promotions, as well as new events to attract more visitors in the spring; Cedar Fair gets most of its revenue between May and September.

The partnership feels these moves will increase its gross earnings from $431.3 million in 2014 to at least $500 million in 2018. That would give it plenty of
room to raise its current annual distribution rate of $3.00 a unit, which yields 5.7%.

Rising earnings justify p/e

The units have gained 11.5% since the start of the year and now trade at 19.8 times the $2.68 a unit Cedar Fair will likely earn in 2015. Its earnings could climb to $3.45 a unit in 2016, and the stock trades at a more reasonable 15.4 times that forecast.

Cedar Fair is a buy.