Speedway Motorsports (TRK) has the luxury of providing stages for the United States' highest grossing professional sports organization -- NASCAR. The company owns some of the nation's biggest racing tracks, including the the Atlanta Motor Speedway, the Bristol Motor Speedway, and others in North Carolina, Kentucky, New Hampshire, Texas, California, and Nevada. For track owners, the name of the game is selling sponsorship space and securing fees from event promoters and producers. Needless to say, Speedway Motorsports should be an appealing niche business. Lately, though, sales have fallen and the company's net earnings turned into a loss. What does this mean for investors?
Earnings update
Though rocky at times, Speedway Motorsports delivers consistent growth. Over the last two years, the stock is up roughly 35%. Over five years, it's up 100%. While some investors may seem unimpressed considering that the S&P 500 has grown much faster over the same period, it's worthwhile to note that Speedway Motorsports trades very cheaply compared to its historical high, whereas the S&P continues to push its highest value ever. This isn't a reason in itself to invest in the company, but perspective is important.
The company capped off its recently ended fiscal year with $480 million in sales and $0.90 per share in adjusted income from continuing operations. Year over year, sales were down by about $10 million, but investors should keep in mind the United States' macroeconomic conditions and target demographic of racing events. In the lower-middle class, unemployment remains high and consumers have yet to feel more confident about spending. In 2012, the company had earned $1.01 per share from continuing operations.
The current year should improve, but only slightly. Management guided for sales of $475 million-$500 million, with income from continuing operations coming in at $0.90 per share-$1.10 per share.
Better than it looks
The numbers aren't great right now, but that may be OK. As a stock, Speedway Motorsports has many fundamental appeals. For one, its year-to-year sales are easily forecast as much of the company's revenue comes in the form of multiyear contracts with sponsors, broadcasters, and other parties.
NASCAR Sprint Cup sponsorships are fully committed for the full-year 2014. The sport recently renegotiated with broadcasters for a record fee of $8.2 billion, covering 2015-2024. As NASCAR's broadcasting revenue rises, the percentage that Speedway receives from NASCAR for its individual events grows in tandem.
The company also continues to invest heavily in its facilities, including two new high-definition video boards at the Charlotte and Texas speedways that are the largest in the motorsports realm.
While the results for the past year weren't stunning, it was simply a matter of macro-level headwinds hurting the core demographic and slowing things down. In the long run, motorsports in the U.S. have a long, attractive growth runway. As one of the major players in the industry, Speedway Motorsports remains a compelling pick today.
