Investors got a bit of a mixed bag from Motley Fool Hidden Gems selection Ameristar Casinos (NASDAQ:ASCA) on Wednesday, when the riverboat casino operator reported its fourth-quarter results. The good news: Ameristar's Vicksburg, Miss., property continued to see extraordinary gains as the casinos further down south along the Mississippi Gulf Coast remained out of commission -- only three had returned to operation by the end of December. The bad news: While the company appears to have regained momentum in St. Louis and the Kansas City property continues to plow ahead, both Missouri properties suffered declines in their operating income as a result of heavy promotional spending.

Overall, Ameristar's net revenues climbed 13.6% to $243.8 million in the quarter, one-third of the gains being attributable to having a full quarter's results at the property in Black Hawk, Colo., that the company acquired in December 2004. Operating income increased 4.8% to $39.7 million, and earnings before interest, taxes, amortization, and depreciation climbed 8.6% to $62.1 million. Meanwhile, excluding the loss on the early retirement of debt, the company posted earnings of $0.27 per share to beat the analyst estimate by a penny.

And, as has been typical, every Ameristar-branded property finished the quarter with the leading market-share position in every market in which it competes.

Q4 Market Share

Market

2001

2002

2003

2004

2005

St. Louis , Mo.

19.9%

29.4%

32.0%

31.3%

32.1%

Kansas City , Mo.

32.5%

34.3%

35.7%

36.1%

36.8%

Council Bluffs , Iowa

37.6%

39.4%

40.1%

39.7%

43.0%

Vicksburg , Miss.

35.5%

40.2%

43.5%

45.0%

47.0%


Vicksburg
The entire Vicksburg market has been on steroids since Hurricane Katrina shut down the entire Gulf Coast market in August and drove demand further up north to Vicksburg and Tunica. As the biggest property with a dominating location in the market, Ameristar Vicksburg claimed 52% of the gains in the market, while overall net revenues at the property climbed 45% to $37.9 million in the fourth quarter. At the same time, operating income more than doubled to $13.9 million, while EBITDA jumped 77.5% to $16.9 million.

I think we can probably expect this trend to continue for the next couple of quarters or so, though probably at a more moderate rate, now that three casinos have reopened along the Gulf Coast with positive results. (Four more are set to return later this year, including MGM Mirage's (NYSE:MGM) Beau Rivage.) In addition, Ameristar's property will experience some construction-related disruption as a new 1,083-space parking garage is built and an expansion project on the casino begins in March that will add space for an additional 800 slot machines and a new poker room.

St. Louis and Kansas City
Ameristar appears to have regained momentum in St. Louis. The company has recaptured some share it had lost to archrival Harrah's Entertainment (NYSE:HET) following the completion of Harrah's construction projects a couple of summers ago. Ameristar's market share has climbed steadily from 31.3% in Q4 2004 to 32.1% in Q4 2005. However, though net revenue increased by 1.4% to $70.5 million in the fourth quarter, operating income fell 11.9% to $14.1 million while EBITDA dropped 7.2% to $20.7 million because of increasingly heavy promotional spending. So you might say Ameristar bought its gains.

The biggest question in my mind is whether the increased spending level for marketing is temporary or (the logical choice) permanent. Ameristar is in the uneasy situation of having its toughest competitor in the market located just a few miles down the road, while all of the other non-competitors are all the way across town. However, I believe that Ameristar has the best property in the St. Louis market, and I think the numbers will bear that out once the company completes construction on its 400-room hotel in the fourth quarter of 2007. As it is, Ameristar is competing at a disadvantage without any lodging, while Harrah's St. Louis property has a 502-room hotel.

Even then, though, Ameristar's problems won't go away in St. Louis. By the end of 2007, Pinnacle Entertainment (NYSE:PNK) will have entered the St. Louis market as a tough third competitor, albeit across town.

The same promotional-spending situation, meanwhile, is occurring in Kansas City, where Ameristar does have a hotel and has dominated Harrah's in recent years. That said, I am not inclined to count on Ameristar's problems going away in either market.

Black Hawk
The Mountain High casino in Black Hawk -- acquired in a $115 million deal in 2004 -- spent the year with construction disruptions. It contributed $51.3 million in revenues and $6.7 million in EBITDA for all of 2005, but let's face it: Those are numbers less worthy of the Starbucks (NASDAQ:SBUX) than the Krispy Kreme (NYSE:KKD) located on the property. (Incidentally, the Mountain High is the only Ameristar-owned property to have either.)

But on the bright side, the property is almost ready for its coming-out party. Ameristar completed the expansion of the parking garage in November, and a remodeling of the casino and non-gaming venues on the first floor was "substantially completed" in December. The completion -- probably in February -- of the second floor will add 700 more slot machines for a total of 1,900. And in April, the company plans to finally rebrand the Mountain High as an Ameristar property.

Construction on the 537-room hotel is expected to begin during the current quarter and be completed in the second quarter of 2008. On the earnings conference call (transcript provided by StreetEvents), CEO Craig Neilsen said Ameristar expects annual EBITDA of around $60 million to $70 million at that point -- roughly in the EBITDA range of Ameristar Kansas City and Ameristar Council Bluffs. The company also expects to gain the No. 1 market position by then.

Further expansion
Ameristar already has its hands full with internal projects and plans to make $346 million to $376 million in capital expenditures in 2006. And with Harrah's $85 million rebranding of the Horseshoe in Council Bluffs this quarter -- a move that means heightened competition -- Ameristar intends to announce an expansion program in that market later this year.

Externally, Ameristar is still looking to expand into new markets. Among other opportunities, the company had reportedly been looking into building in Gulfport, Miss., last year, and it may be eyeing one of Penn National's (NASDAQ:PENN) Chicagoland properties -- though Illinois, with its high gaming-tax rate, is a state the company would probably prefer to avoid.

Looking ahead
For 2006, the company expects to generate operating income of $166 million to $174 million and EBITDA of $263 million to $271 million, with diluted earnings of $0.98 to $1.06 per share on a basis of generally accepted accounting principles. But excluding a one-time loss from the early retirement of debt and stock options expense, the company expects to earn $1.36 to $1.44 per share, up from $1.18 in 2005. Meanwhile, EBITDA excluding stock options expense is expected to climb to between $272 million and $280 million for the year, up from $254 million in 2005.

Fully valued
In all, Ameristar delivered a pretty decent fourth-quarter report. For those new to the company, I think the market-share data speaks for itself -- Ameristar is a top competitor in an attractive business. That said, my view hasn't changed much, and I think the stock is fully valued for the time being at $24 per share, or at a forward EV/EBITDA multiple of around 7.5.

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Fool contributor Jeff Hwang owns shares of Ameristar Casinos and Starbucks. The Motley Fool has a disclosure policy.