Shares of Isle of Capri
For sports fans out there, we can just say that Isle of Capri is in a rebuilding year, sacrificing current performance for an overhaul that will ultimately strengthen the firm's competitive position. Renovations at the company's properties will curtail growth in the short term but will pay off after completion next spring.
Construction is now nearly complete at the Grand Palais Casino in Lake Charles, La., but a $79 million renovation at the Isle-Biloxi in Mississippi as well as a massive $95 million undertaking in Black Hawk, Colo., will both continue to substantially hamper operations until next year. Just as rival Argosy
With $41.7 million in revenues last quarter, Lake Charles is hands down the firm's leading casino, and Black Hawk with $10.2 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) is clearly the most profitable.
With the exception of Blackjack, whose rules and versions can vary widely from table to table, casino play is largely standardized. A $1 bet on my favorite roulette number -- 20 -- will return $35 whether my chips are played in a riverboat casino or Caesar's
Property renovations may take a bite out of earnings, but they are vital to increasing business. Competitor Pinnacle's
Despite the ongoing fiasco over the apparent loss of a gaming license near Chicago, Isle of Capri's strategy of geographic diversity is sound. The company operates casinos in a broad range of markets spanning from Mississippi to Colorado and compared with more concentrated competitors has limited exposure to regional operating environment changes. Isle of Capri's revenues, earnings, and margins will likely be held in check temporarily, but every company in the industry at times must contend with construction disruptions and large capital expenditures for new projects. It is simply the price to pay for future growth.
Fool contributor Nathan Slaughter is well aware that Roulette carries a 5.26% house advantage but enjoys playing the game occasionally anyway. He owns none of the companies mentioned.
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