Wall Street Bets Big On Isle Of Capri Casinos
16 June 2009 - 5:52AM
Dow Jones News
Wall Street is stacking its chips on the table for Isle of Capri
Casinos Inc. (ISLE).
Comprehensive cost-cutting measures and being outside the
troubled Las Vegas and Atlantic City markets is making Isle of
Capri a safer bet among investors despite continued revenue loss at
its casinos. The regional gambling operator, based in St. Louis,
Mo., is sporting the best returns among its peers, with its share
price more than tripling since the beginning of the year.
"Although there is broad pressure on consumer spending, smaller
regional markets have held up better than Las Vegas and Atlantic
City during the recession," said Michael Paladino, senior director
of gaming at Fitch Ratings.
Missouri recently eased gaming regulations, which helped Isle's
relative property performance compared with some of the larger
gaming companies with greater exposure to Las Vegas and Atlantic
City, Paladino said. In general, regional casinos in America's
heartland have stabilized because they aren't as vulnerable to
weakness in nongaming areas such as lodging, fine dining and air
travel.
MGM Mirage (MGM) and Las Vegas Sands Corp. (LVS) had been dogged
by concerns surrounding liquidity as well as a brutal business
environment in Sin City which is battling rising unemployment and
home foreclosures. Amid signs of industry stabilization and the
removal of bankruptcy fears, MGM Mirage is up 260% from its 52-week
low of $1.81. However, the company's share price is still down
about 52% from the beginning of the year.
Meanwhile, Las Vegas Sands is up roughly 36% on the year to
about $8.
Keith Foley, a gaming analyst at Moody's Investors Service, said
while investors are getting more bullish because the pace of
declines has slowed, Isle of Capri is still grappling with
"declines on a revenue basis with few exceptions across the board,"
at the casino properties.
"The top line is still struggling," he said. Foley noted,
however, that the management team has made extensive strides at
controlling costs. "It's still hard to say that (demand) trends
have stabilized across the U.S."
Isle of Capri, which owns 17 properties, announced last week
that it swung to a fiscal fourth-quarter profit on a $57.7 million
gain from the early extinguishment of debt. It was the company's
second straight quarter of profit after more than two years of
losses - a $95.2 million Hurricane Katrina insurance claim inflated
its fiscal third-quarter results.
The debt-laden casino operator has been cutting costs and
consolidating its portfolio into two brands as it concentrates on
the U.S. The company has left the U.K. market and plans to stop
operating its property in the Bahamas, where a sharp decline in
tourism in late May shuttered a Four Seasons Hotels and Resorts BV
property.
"We still see a tremendous amount of pressure across the
company, as far as our retail revenue is concerned. Our database
customers are basically coming about the same as they used to, but
we're seeing that they're spending a little bit less," said
Virginia McDowell, president and chief operating officer of Isle of
Capri during the earnings call last week.
"We expect those trends to continue," she said.
Fitch's Paladino said the company has made strong efforts to
improve their financial position, which has improved sentiment on
the company.
They have "one of the top cost-focused management teams in the
industry," he said. "Their overall credit profile is pretty
attractive."
Paladino also said Isle has no debt maturities until 2012 and
very minimal capital spending plans beyond maintenance.
-By A.D. Pruitt, Dow Jones Newswires, 212-416-2197,
angela.pruitt@dowjones.com