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Ticker: (NYSE: AGY)
Argosy's fleet has been running in tip-top shape. While the company's five boats are stationary, if they were seaworthy they'd be paddling against the current flow of the market. Earning estimates are increasing at a time when most companies are warning of bottom line shortfalls. The company is buying up a bigger piece of its most popular boat in Indiana at a time when most companies are scaling back. With a market that's willing to forgive vice purveyors like Philip Morris (NYSE: MO) in pursuit of value to replace fallen growth stars, it seems that sin is in -- as long as it's marked down to comfortable levels. With Argosy now expecting to earn as much as two bucks a share this year, the company is trading in the pre-teens on a year-ahead P/E basis. Investors seem to like being handed two high face cards as the stock has opted to double down.
In December, with Argosy trading in the mid-teens, the company struck a deal to buy Conseco's (NYSE: CNC) 29% stake. That upped Argosy's claim to 86.5% of the riverboat. It was a sound move. With the floating casino generating $350 million a year in revenue, it outperforms the other four complexes combined. Earlier this month, the company announced that it would be buying back the remaining 13.5% piece from local investors. With all five riverboat casinos now fully owned, Argosy is charting new waters for expansion -- something it had done early on as it built up its fleet. Had the fundamentals deteriorated over the three months between bites? Hardly. As a matter of fact it was better-than-expected results at the casino in January and February that prompted the company to raise its March quarter and full-year estimates. Argosy is now looking at earning between $0.44 and $0.47 a share for the current quarter and $1.90 to $2.00 for the fiscal year. Estimates, which had already optimistically lapped previous guidance, were pegged at $0.42 and $1.84 a share, respectively. Like any trip into one of Argosy's properties, there is obviously the risk of losing money here. Now that the company owns all of Lawrenceburg's casino and hotel complex, it will clearly dominate the company's financials until the company adds to its roster. Any twitch in the Cincinnati and nearby Dayton gaming market and Argosy will feel it. There is also the gambler's psychology to deal with. At the start of an economic breakdown or a bear market, it's easy to see why some might take an extra chance at a casino to make up for a lack of gains elsewhere. Of course, the motivation is flawed since casinos exist because they obviously take in more than they pay out. Over time, if the recession is pronounced, the reality that the discretionary dollars are thinning out sinks in. Clearly this is a concern for just about every product or service provider out there. Argosy has been immune to the equity downdraft but it doesn't make the malady any less contagious. UBS Securities initiated coverage on Argosy this week with a buy rating. Cautiously, it set a 12- month price target of just $29 -- only a few bucks higher than it is today -- and just 15 times this year's new earnings guidance. So there is still value to be had even then. But Argosy and the economy have to play this hand close. Having an extra ace up its sleeve wouldn't hurt. Rick Aristotle Munarriz used to play a mean game of Go Fish. He does not own shares in Argosy Gaming. Want to know which stocks Rick does own? His stock holdings can be viewed online, as can the Fool's disclosure policy.Argosy Gaming Company
Phone: (618) 474-7500
Website: http://www.argosycasinos.com/
Price (3/21/01): $24.42
How Did It Double?
Talk about a Love Boat. At a time when the discretionary dollar is running scarce and the gaming industry seems bent on expanding past market saturation, Argosy Gaming (NYSE: AGY) has been floating pretty in the riverboat casino business.
Business Description
Argosy owns and operates five riverboat casinos serving the greater St. Louis, Kansas City, Baton Rouge, Cincinnati, and Sioux City markets. The Illinois-based company's flagship casino is the in Lawrenceburg, Indiana -- a huge floating complex with 2000 slot machines and 100 table games.
Financial Facts
Income Statement
12-month sales: $694.8 million
12-month income: $50.6 million*
12-month EPS: $1.73*
Profit Margin: 7.28%
Market Cap: $710.6 million
*excludes one-time items
Balance Sheet
Cash: 59.4 million
Current Assets: $72.2 million
Total Assets: $537.2 million
Current Liabilities: $105.7 million
Long-term Debt $252.6 million
Total Liabilities: $433.3 million
Shareholders' Equity: $104.0 million
Ratios
Price-to-earnings: 14.1
Price-to-sales: 1.0
How Could You Have Found This Double?
Our own Paul Larson was a big fan of Argosy when he profiled the company in our Industry Focus 2001 late last year. With limited competition in the greater Cincinnati area, the Lawrenceburg behemoth was the major draw in Argosy's fleet even if it only owned a 57.5% stake in the venture at the time.
Where to From Here?
Argosy got a good deal for the last remaining piece of Lawrenceburg. The company paid out $260 million for Conseco's stake, implying that the whole complex was worth just shy of $900 million. However, picking up the last chunk for just $105 million would value Lawrenceburg at just $777 million.
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