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Bull of the Day: Isle of Capri (ISLE)

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Investors are used to hearing excuses from management teams when they don’t meet expectations; there was bad weather, project costs rose more than expected, or the project didn’t work out the way we expected.  But some management teams say they are going to control expenses, and actually do it.  One such company was able to cut expenses across their entire portfolio, Isle of Capri Casinos (ISLE), the Zacks Bull of the Day. 

This Zacks Rank #1 (Strong Buy) company is a developer, owner and operator of branded gaming and related lodging and entertainment facilities in growing markets in the United States. The company wholly or partially owns and operates gaming facilities under the name Isle of Capri. In addition, the company wholly owns and operates a pari-mutuel harness racing facility and owns interests in and operates gaming activities aboard a cruise ship based.

Earnings Results

Management recently released Q4 16 results where they beat the Zacks Consensus Earnings estimate but came in just short of the Zacks Consensus Revenue estimate.  The company saw eight of their thirteen properties post higher year over year Adjusted EBITDA, with the Missouri properties as the biggest driver.  Further, diluted net income per share from continuing operations rose to $0.60 per share, significantly above last year’s $0.08.  Management also saw fiscal 2016 adjusted EBITDA rise +5.0% year over year and adjusted EBITDA margins rose 100 basis points (Bps) to 21.6%. 

But more importantly, management kept their promise, they cut controllable costs by 1% across the board.  Management reduced marketing and other operating expenses by almost $3 million, while improving hotel rooms, casino floors, and hotel lobbies.  Further during the quarter the company was completing the construction of a land-based casino facility in Bettendorf, Iowa which just recently opened. 

Management’s Take

According to Eric Hausler, CEO, “We increased Adjusted EBITDA and Adjusted EBITDA margins for both the quarter and fiscal 2016, and have grown Adjusted EBITDA and Adjusted EBITDA margins in eight of the last nine quarters.

"During fiscal 2016, we continued to reinvigorate our properties through prudent capital investments across the portfolio. Perhaps most significantly, we are excited to open our new land-based gaming and entertainment facility in Bettendorf on June 24, 2016.  We believe it will be an outstanding upgrade to the customer experience at our Bettendorf property.  Later this summer, we expect to launch our online play-for-fun casino and to offer lifestyle products under the Lady Luck brand.  We expect these new offerings to further enhance our player loyalty and broaden the demographic appeal of our Lady Luck brand.

"We are also particularly proud that we reduced our debt balance by over $70 million in fiscal 2016 and strengthened our balance sheet, while building Bettendorf and reinvesting in our properties. This highlights the strong free cash flow generation of our business."

Price and Consensus Graph

As you can see in the price and consensus graph below, ISLE has seen price appreciation along with increasing estimates for 2017. 

ISLE OF CAPRI Price and Consensus

ISLE OF CAPRI Price and Consensus | ISLE OF CAPRI Quote

Future Estimates

Estimates for Q1 17, Q2 17, FY 17 and FY18 have all seen improvements over the past 30 days; Q1 17 rose from $0.26 to $0.29, Q2 17 improved from $0.22 to $0.26, FY 17 was elevated from $1.30 to $1.43, and FY 18 was lifted from $1.36 to $1.59.

Bottom Line

Management continues to implement their long term cost containment plan with their efforts to improve operational performance in order to drive cost savings with both corporate and property expenses. 

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