The column below is one of a series that elaborates on our recently published outlook for gaming investments in 2023.
There is a lot of well-known uncertainty for gaming stocks as we head into the new year but even in this environment, a stock picker can find winners.
The clearest for us, and our stock of 2023, is Full House Resorts.
The story is as simple as can be. The small regional casino operator will open two properties next year that will be truly transformational.
They are Cripple Creek, Colorado’s first resort quality casino, named Chamonix, and the aptly named The Temporary in Waukegan, Illinois, which will precede the permanent casino, American Place, Chicagoland’s first and only casino designed exclusively for high-end customers.
The properties should triple Full House’s EBITDA, and likely will quadruple EBITDA after the permanent American Place opens in 2025 and by which time Chamonix will have fully ramped up. Additionally, the debt-to-EBITDA ratio is likely to be within industry and the company’s historic norms.
The back-of-the-envelope math is that the properties, combining for more than $600 million in investment, generate a 15 percent return to add onto an existing business base of $40 million or more.
That forecast may be conservative given that American Place will be the lone casino in Lake County, an affluent suburb of underpenetrated Chicago. A 20 percent return on the $375 million property is more likely.
Ditto for Cripple Creek, where Chamonix will immediately become the king of Colorado Springs, the state’s fastest-growing metro area with a population today around 800,000. The role model is Black Hawk to the north, where resort-quality Ameristar and Monarch casinos enjoy resort-type business volumes.
Cripple Creek is an hour from Colorado Springs, about the same distance as Black Hawk is from Denver. It is also four hours south of Denver, suggesting it could draw some customers from Colorado’s largest market.
Full House’s stock has been selling for $7 to $8 a share recently. It is likely to trade at $20 to $25 after the new projects open and prove themselves. Over time, $30 or higher is achievable.
There is more to Full House’s future than these two properties. It is in the early days of tapping the sports betting potential of Indiana and Colorado, and later Illinois, through third-party operators. Its Silver Slipper Casino in Mississippi has seen increasing competition from Louisiana as that state has adopted sports betting, but it remains the closest Gulf Coast casino to New Orleans retaining its potential as a convenient beachfront boutique resort for that metro.
One of Full House’s strengths is its top management, namely CEO Dan Lee and CFO Lewis Fanger. The duo has been through the development and growth process before at Pinnacle Entertainment.
Lee tends to be acerbic at times, which can alienate stakeholders and even some regulators. But on the much more positive side he is an experienced, dedicated and creative casino developer and operator whose entrepreneurial mind works 24/7. You can bet that Lee will have more innovative growth ideas after Chamonix and American Place.
Again, those who invested with Dan Lee in Pinnacle won a return multiple times their investment.
Full House is different from Pinnacle in that Lee owns a bigger chunk of the stock and has been a buyer of the shares. It’s more “his” company.
And just a few days ago, Fanger reached into his pocket to buy another 10,000 shares.
Investors who join them are likely to benefit.
