Horse-Racing & Gaming Stocks Update: Still "in the money"

Monday, Sept. 28th, 2015

Gaming and Racing Stocks Update The shares of gaming and horse racing stocks have surged upward nicely this year, far outpacing the general market. The assembled portfolio of 11 stocks on January 1^st have risen over 20% on average.* This is an update from our originally published story July 9th. See http://goo.gl/9GMsDR for that complete post. The HorseRacingFLA index of 11 horse-racing gaming affiliated stocks rose +20.3% year-to-date. Since last report in early July, the index fell 3.4%. Year-to-date, the Dow Jones Industrial Average has fallen 8%, and the Nasdaq Composite is down 1%.

Eldorado Resorts (ERI) and Isle of Capri Casinos (ISLE) more than doubled in price year-to-date, and they both added to those gains since our July post. Eldorado’s results were boosted by the recent acquisitions MTR Gaming Group, Inc. (MTR), which merged with the Company in Sept.,2014. Investors seem to be banking on future earnings here as the companies per share income fell in the June period by 16%. Isle Racing & Casino at Pompano Park reported a profit of $3.1 million in its fiscal 2016 first quarter compared with a loss of $2.3 million in the prior year’s quarter, which included $2.3 million in severance expenses related to corporate staff cuts and $1 million in expenses related to a voter referendum in Colorado. Earlier this month, the company announced it is closing its casino in Natchez, Mississippi, that has lost money for the last two years and also selling the hotel and certain non-gaming assets to Casino Holding Investment Partners LLC, parent company of a competing Natchez casino, for $11.5 million. Isle officials said Tuesday the deal is still expected to close in October. St. Louis-based Isle of Capri Casinos Inc. owns or operates 15 casino properties, primarily under the Isle and Lady Luck brands, in Mississippi, Louisiana, Iowa, Missouri, Colorado, Florida and Pennsylvania.

Churchill Downs (CHDN) completed a banner second quarter, with record net revenues of $409.2 million, up 35% over second-quarter 2014; and record adjusted EBITDA of $157.2 million, 34% above 2014’s second-quarter. The record Kentucky Oaks and Kentucky Derby weeks also saw a record first half net cash from operating activities of $194.2 million, up 63% over the prior year. The shares have gained another 6% since our July report, and now sit 40% higher on the year. Far distanced from the Louisville, Kentucky HQ, here in South Florida, our local “Twin-spires” race track, Calder, has all but signaled intentions to slowly exit the horse racing business, leasing its racing operation to Gulfstream Park, and racing just the minimum 40 days per year to keep its casino license operational with the State. The legislature re-convenes its 2016 session in January, and may once again consider their request to de-couple their racing operation from their casino. Calder’s short Fall racing season gets underway October 7^th, under the management of Gulfstream Park West.

The bottom-feeding – based on performance – gaming stocks in our mid-year report were Las Vegas Sands (LVS), Wynn Resorts (WYNN), and Caesars Entertainment (CZR). Wynn’s is off 60% year-to-date, and the woes continue with its health hinged in part upon the Chinese operations in Macau. Macau’s casino revenues fell for 15 straight months as China’s anti-corruption crackdown and a slowing economy kept high rollers at bay. So-called junket operators, the middlemen who provide betting credit to the high-end players, have been closing their exclusive gambling rooms amid the downturn. Caesar’s stock popped an impressive 17% since our July post, leading our list of 11 stocks, but off 54% YTD. The woes continue, however, as the creditor lawsuit continues to drain and divert the companies’ operations. Caesars Entertainment Corp. is at a $2 billion impasse with creditors it hopes will help keep it from sliding into bankruptcy alongside its operating unit, two people familiar with the negotiations said. The casino company and a committee of junior bondholders haven’t had substantive talks since last month, said the people, who requested anonymity because the negotiations are private. The bondholders are asking for about $2 billion more than Caesars has offered, according to a report by Bloomberg Intelligence analysts Philip Brendel and Julia Winters. The bad news for Caesars doesn’t end there. It also lost the backing of another group of creditors who refused to extend a deadline for a proposed deal to restructure the company’s insolvent subsidiary.

So in sum, the publicly-traded gaming and horse-racing stocks continue to exhibit strength, but it’s a very diverse field. Five of the contestants are still “out of the money” year-to-date, and the remaining six are picking up nice exacta and tri-fecta wins.

Our next report on this topic will be year-end; when we’ll recap the yearly performance. We list below the ticker symbols if you wish to follow our portfolio.

* data thru 9/25/15; does not include dividends paid.

Stocks followed: BYD, CHDN, CPHC,CZR, ERI, ISLE, LVS, MGM, PENN, PNK, WYNN.

Our Index levels, 1/1/2015 = 100.00; 7/6/15 = 124.40; 9/25/15 = 120.30

 

 

 

 

Horse-Racing & Gaming Stocks Update: Still "in the money"