After Isle of Capri Casinos posted its quarterly earnings report on June 14, equities researchers at Telsey Advisory Group issued a “hold” rating. In a statement to investors, Telsey said, “The quarter suggests that ISLE remains on a consistent path. Revenue trends are stable in aggregate with pressure in some markets offset by strength in others, while the profitability shows modest improvement on cost-cutting. We maintain our view that ISLE benefits from the regional gaming markets’ stable operating environment and a positive balance sheet. However, from a fundamental operating perspective, there is room for only modest improvement. The more meaningful upside opportunity for the shares, in our view, is based on the capital markets and the prospects for a more transformative transaction, which may or may not occur. We reiterate our neutral stance on the shares”.
Isle has a market capitalization of $704.85 million and a price-to-earnings ratio of 29.32. Its 52-week low is $10.62 and its 52-week high is $21.43. The company has a 50 day moving average price of $15.52 and a 200-day moving average price of $13.83. For the quarter, Isle reported $0.62 earnings per share, and earned $264.90 million. Quarterly revenue was down 1.6 percent on a year-over year basis.
Telsey stated Isle’s Black Hawk, Colorado property revenue was below its forecast for the quarter. “Management attributed the weakness to competition and a difficult YoY comp due to a construction benefit,” its report said. Isle’s Pompano, Florida property also reported declines. Telsey stated, “Competition and mild weather impacting snow bird visitation weighed on results at Pompano, though levels rebounded towards the end of 4Q.” At Lake Charles, Telsey said, “The market was negatively impacted by flooding, which closed the I-10 highway for four days in March, resulting in a $1M headwind to revenue. ISLE noted that it was able to mitigate 85 percent of Lake Charles’ 4Q revenue decline via cost cutting.”
The report further indicated, “ISLE continues to focus on internal and external allocation of capital, with the entire capital structure under review. This includes a potential stock buyback program and/or the refinancing of debt. CEO Eric Hausler also noted that ISLE would likely not target a REIT conversion, as the vehicle used by others such as PENN and GLPI to spin off their real estate is no longer a viable option due to new IRS regulations, although other strategies could be considered. The company also intends to make technology a focal point as well. To this end, ISLE will be launching its first social gaming site later this summer under the Lady Luck brand. According to ISLE, it will be mid to late FY17 before there is much impact to cost or revenue from the new product.”
As a result of these and other performance indicators, Telsey announced “We are raising our price target by $1 to $19, based on an average of our 7.0X, 15.0X, and 10.0X multiples on our FY17E & FY18E EV/EBITDA, EPS and FCF forecasts, respectively, as well as our 5-year DCF, which yields a value of $17.26. We believe these are historically appropriate levels for the company given the market dynamics. We note that ISLE has historically traded at a discount to other names in the sector, although opportunities for growth and value enhancement warrant at least a peer level valuation.”
Isle of Capri Casinos Inc. owns or operates 15 gaming and entertainment facilities in Colorado, Florida, Iowa, Louisiana, Mississippi, Missouri and Pennsylvania.
