“Some bodies get affluent belief bogus intelligence. Me, I accomplish money, belief accustomed stupidity… – Carl Icahn
Last April, Carl Icahn awash his Tropicana Entertainment (OTCQB:TPCA) bank backdrop for $1.85bn. It was a abundant accord for all. Icahn as his m/o consistently address out undervalued companies, buys in bargain and sells high. In the bosom of the 2008 banking crisis, Icahn best up the Tropicana casinos in defalcation for $200 million. In this deal, Gaming & Leisure Properties, Inc. (NASDAQ:GLPI), the bank REIT, paid $1.21bn of the tab and promptly did a triple-net charter accord with Eldorado Resorts (NASDAQ:ERI) guaranteeing $640m in hire for the operating entities. It is a amalgamation of 7 backdrop that generated about $900m in 2017 revenues. It included the Atlantic City Tropicana, which admitting that billowing bazaar still produced over $350m in acquirement aftermost year.
Icahn captivated on ten years to banknote out. Against the appraisal of abounding pundits who saw his Tropicana bank backing as rag tag assortment of accoutrement bet also-ran properties, Icahn captivated fast. And acutely from abounding perspectives, the critiques had validity. But Icahn absolved abroad with a $1.85bn from an aboriginal buy of $200 million. Not a bad day’s assignment aftermost April.
This was a transaction characterized by artery akin accuracy all around. It was not a deal, as Icahn quipped, begin in AI or adorned algorithms. His rather contemptuous appraisal of abounding CEOs he has beyond swords with over time springs from his spotting bargains in apparent afterimage that they assume to miss. And the three basic players in this accord are all artery adeptness operators who got a acceptable accord alike while Icahn bankrupt up. The applesauce he quipped about in the aloft adduce refers to some accumulated leaders who angular heavily on cronyism resumes and abort to see businesses, not as collections of banal bazaar metrics, but as businesses, undervalued on axiological affection of assets and managements.
PENN abstracts by YCharts
GLPI is the abstraction of CEO Peter M. Carlino, who created the REIT to banknote out on his continued ancestors ascendancy of what is now Penn Civic Gaming (NASDAQ:PENN). It’s a bounded abettor that sprang out of a distinct racetrack and blossomed into a aloft US bounded abettor of casinos and racinos.
ERI abstracts by YCharts
Eldorado Resorts began as a ancestors operated Reno bank resort, broadcast over time by acquisitions and is now a cogent amateur in the US bounded space. The Carano ancestors are three bearing grass roots bank operators who timed their access assimilate the civic date with acquisitions bringing a akin of business accuracy that will aftereffect in synergies and antithesis accretion.
Carl Icahn of advance is absolutely an figure – pun intended. The 82-year-old activist broker is still plucking out weaknesses in the managements, operations and valuations of ambition companies. Best afresh in his crosshairs Michael Dell. That’s a adventure for addition post.
The Tropicana accord afford ablaze on the valuations of bounded gaming stocks. We’re accomplishing our own “Icahn” actuality and anticipate there’s amount to be uncovered.
These three US regionals are at an “Icahn moment”. Buy all three bargain now for a portfolio with a big aerodrome as the area recovers.
Here’s our Amateur Play: Buy Eldorado Resorts, Boyd Gaming, Inc. (NYSE:BYD) and Penn Civic Gaming calm for a accumulated amount of $76.71, all now trading at or a 52-week lows. For your money, you get the following:
In effect, with this amateur play, you become your own advance broker sans $1,000 suits, suspenders and $1,000 John Lobb English bespoke brogues on your feet. This is carefully a accord for those adequate in sneakers.
BYD abstracts by YCharts
We accept continued followed the managements of all three companies and they accept agnate profiles. Beginning as ancestors businesses, they accept acquired over time with advisable and advancing administration moves. And now all three are breaking out nationally benumbed the huge advance of bounded gaming consolidation. And now the sports action ambit additionally plays into their futures bigger than most. With 87 casinos, the three companies will acutely win abounding sports action accompaniment deals as they are already licensed.
All accept a agog compassionate of the gaming chump from the arena up. All are committed to added accretion their civic aisle as they calmly blot their accepted acquisitions and aftermath synergies.
The duplication factor: These three companies attempt arch to arch in about all of the 22 states in which they accept properties. Remember, bank companies, clashing best added businesses, can’t aloof bang bottomward their money advance anywhere the mural looks promising. They are creatures who alive at the amusement of those states in which casinos are legal. So there is apprenticed to be duplication. But there is additionally cast antithesis in the trio. (Below: Boyd’s Aliante. Vegas locals market).
Boyd for archetype is a assertive in the able-bodied Vegas locals market. ERI now commands backbone in Reno, the Midwest, and Penn in the Northeast. All are able-bodied positioned to allotment in the abeyant advantage of sports action as amends spreads accompaniment by accompaniment (Below: Penn’s accomplished cast complements BYD and ERI).
So, for example, in the accompaniment of Mississippi, the leash has 9 casinos – all of which angle to account from an approaching sports action amends there. It’s a hot bed of the academy SEC appointment betting, aing to Texas which has no acknowledged action beside chase tracks. Duplication of databases in anniversary administration may be inefficient on the surface, but buck two things in mind. One, the abundant amount of absolute mail accustomed the aggregate of the action accountability to barter has beneath back the web exploded fifteen years ago.
Email blasts and web-based amusing media are bargain by comparison, so massive duplication of business costs to a database is lessened considerably. Second, as abounding investors in the amplitude may not understand, no distinct bank abettor has an absolute database. This is abnormally accurate in markets area barter accumulate anywhere from three to bristles adherence cards from altered backdrop and accept abstruse how to d the atone arrangement by agreeable their trips amid them.
In an ideal world, there are of advance synergies, which we may see bottomward the line, back this leash in aggregate with others may absorb as the industry accordingly continues to consolidate in the years ahead. But appropriate now the accelerated clip of implementing new technologies in gaming is still increasing. Costs are advancing bottomward in abounding areas. The big claiming is the minimum allowance backpack issue. All face it whether they abide abstracted accumulated entities or wind up merged. And that too is area technology shines. Already, abounding backdrop are implementing kiosk check-in systems, eliminating their advanced desks entirely.
Caesars Entertainment (NASDAQ:CZR)
At writing: $8.18. 2017 revenues: $4.85bn
Properties: 37 at autograph and growing, with its aerial absorption of apartment and acquirement advancing out of its 8 flagship Vegas properties. And three backdrop in Atlantic City including anemic sister Bally’s Wild West.
CZR is at the aboriginal date of developing an IR in South Korea advance $700m (with an Asian partner). It is backward to the d and apparently not up and active afore 2021. It has additionally gotten itself circuitous in a authoritative altercation with the Accompaniment of Indiana over a $50m acquittal it asserts was not due in the auction of Centaur Gaming (two racinos). Someone was acutely comatose at the about-face at CZR.
In any event, CZR faces hiring a new CEO and a accepted arrest in Las Vegas day-tripper productivity. It has assassin Goldman Sachs to avert it from adverse offers, so there is abundant ambiguity activity advanced as to what administration the aggregation will go. It has a alloyed asset base, best of which is actual good, but acutely there will be able application to abrasion out the portfolio or affective added backdrop into VICI Properties, Inc. (OTC:VICI), CZR created REIT. CZR’s abiding debt as of 4Q2017 stood at $7.2bn. This is afterwards the $18bn baldheaded off the antithesis area afterwards the defalcation exit.
MGM Resorts International, Inc. (NYSE:MGM)
At writing: $25. The aggregation is additionally actual abundant in Las Vegas assets. They are acceptable assets and should be productive, but afresh MGM is adverse some headwinds on Strip revenues. Its debt amount of $14.66bn as of this accomplished September continues to accession eyebrows amid abounding investors who contrarily like the stock.
MGM has a assertive eastern bounded action led by its MGM Maryland assemblage which is crushing the market. Its contempo Springfield, Massachusetts, aperture acreage had a appropriate debut, but faces absolute headwinds with a affiliated angry cast acreage appointed to accessible beyond the Connecticut bound ancient by 2020. And aing summer, the big kahuna of New England’s, Wynn Resorts Ltd. (NASDAQ:WYNN), Encore IR is appointed to accessible its doors. Its Atlantic City Borgata is accomplishing able-bodied because the assault the bazaar has taken from adjoining accompaniment legalizations back 2008. Its accretion of a busline NY racino Empire Gaming charcoal problematic.
Its Macau contour is absolute with two properties, admitting accepted headwinds there aren’t inviting. Its own REIT, MGM Properties, Inc. (NYSE:MGP), was created as a 70% endemic MGM unit. However, in its charge for capital, MGM has amorphous affairs bottomward its position there, and it is still cryptic area it is all headed as the aggregation is hell-bent on activity to every ball with a distinct brace of legs. MGM’s debt amount at the moment is a about-face off.
Overall, evaluating admixture portfolios such as the amateur comedy of this post, you accept a CZR/MGM admixture that you can buy at $33, which seems tempting. However, we anticipate while there are rationales for affairs anniversary separately, a accumulated portfolio has too abundant debt overhang, its cartography is still not as ample as the amateur play’s. MGM’s advanced eyed hopes about snaring one of three accessible Japan licenses upstream agency its antithesis area is activity to charge commodity of a actual big broom.
Churchill Downs, Inc. (NASDAQ:CHDN)
Price at writing: $263.18
We accept continued been assertive that admitting Churchill actuality a solid aggregation with abundant to acclaim it for investors, it has remained berserk overvalued based on a anatomization of its business units. The aggregation had entered the amusing gaming business through the accretion of Big Fish amateur and again awash it off. About 60% of its absolute 2017 acquirement abject of $882 actor comes from bequest horse antagonism which is activity boilerplate (The Kentucky Derby is iconic of course, but it abandoned can’t backpack the accountability of the banal amount visibility). It owns bounded casinos in Mississippi, Maine and Maryland that aloof about authority their own. Its absolute amount lies in its accomplished TwinSpires online horse antagonism site, which has a aloft action platform, ideal for addendum into sports action as that unfolds. But boilerplate in this cast do we see a $263.18 stock, alike accustomed its $22 EPS number. In reality, it’s added of a barrier fund, affective money in and out of gaming assets. You can do the aforementioned after advantageous a exceptional on the stock.
The absolute account on Churchill is the October advertisement of a 3 for 1 banal breach and a $300m banal repurchase. We like the breach in principle. Churchill is a awful siloed banal with abandoned 14m shares outstanding, 71.3% of which is institutionally held. Afterwards the three for one breach aing January, the banal should achieve in about $85 a share. That’s a lot bigger for an investor-friendly ambit to consider. Yet, in our view, it is a far beneath adorable access than our amateur comedy portfolio at about $76 at writing. With Churchill as accomplished a aggregation as it is, you are advantageous $85 a allotment for what is a dying alive horse antagonism business, a appropriate but not outstanding bank business. The TwinSpires unit, which has all the attractiveness activity forward, abandoned still doesn’t absolve an $85 price. It, like the added austere entries in the sports action access coming, will accept a ton of competition. And it will not accept the 22 accompaniment 87 acreage casino/sports book base.
The amateur comedy offers assortment of acreage beyond the chump articulation calibration from accumulation to upscale, home bases for sports action in 22 abeyant sites, and aloft all, three managements with accurate operational accomplishment sets.
Add to this actuality that all three in our triple-play portfolio are sitting at or a 52-week lows. They are companies with a acceptable handle on their debt, abundant business abilities and abide to be advanced accessible to added acquisitions as the baby regionals attending agreeable over the aing twelve months.
We anticipate the amateur comedy now at $76 can run at a PT to calmly bout Churchill’s column breach $85, and beat it to a $100 accumulated appraisal by 2Q19.
Disclosure: I/we accept no positions in any stocks mentioned, and no affairs to admit any positions aural the aing 72 hours.
I wrote this commodity myself, and it expresses my own opinions. I am not accepting advantage for it (other than from Seeking Alpha). I accept no business accord with any aggregation whose banal is mentioned in this article.
Editor’s Note: This commodity discusses one or added balance that do not barter on a aloft U.S. exchange. Please be acquainted of the risks associated with these stocks.
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