Thanks largely to cost containment initiatives at its St. Charles and Council Bluffs properties, Motley Fool Hidden Gems selection Ameristar Casinos
Wednesday afternoon, Ameristar reported third-quarter net revenue growth of 6.3% to $253.6 million. Meanwhile, EBITDA increased 12.6% to a quarterly record $69.6 million, net income jumped 31% to a record $21.1 million, and diluted EPS similarly increased 32.1% to $0.37 per share -- ahead of the $0.35 per-share analyst estimate.
In all, it was a very positive quarter. In addition to a healthier-than-expected business performance, the company also took advantage of its temporarily deflated stock price, repurchasing 0.4 million shares for approximately $8 million. The fourth-quarter guidance calling for earnings of $0.24 to $0.26 per share, however, is light compared to the $0.27 per-share analyst estimate, and likely reflects a conservative outlook regarding the Vicksburg market, which we'll discuss in greater detail below.
Some notes on a property-by-property basis:
Council Bluffs
With the rebranding of Harrah's
Looking to the future, Ameristar is mulling over options to either replace or expand its riverboat to better compete with the new Horseshoe. While the company hasn't revealed any specific details, Neilsen noted on the earnings call that the company has four different schemes under consideration. Personally, I think the current casino -- the first-generation riverboat which, in my opinion, is in no way capable of competing effectively with the Horseshoe (or at least not for the leading market position) -- will likely be replaced, rather than expanded or left alone altogether.
Council Bluffs Market/Gaming Revenues/Share by Month
Month |
Ameristar |
Share |
Horseshoe |
Share |
Harrah's |
Share |
---|---|---|---|---|---|---|
January |
$16.2M |
43% |
$11.3M |
30% |
$10.1M |
27% |
February |
$16.1M |
44% |
$10.8M |
29% |
$10.0M |
27% |
March |
$16.7M |
40% |
$14.8M |
35% |
$10.5M |
25% |
April |
$15.2M |
37% |
$16.4M |
40% |
$9.0M |
23% |
May |
$14.3M |
37% |
$16.1M |
41% |
$8.7M |
22% |
June |
$14.4M |
38% |
$15.0M |
39% |
$8.6M |
23% |
July |
$15.9M |
37% |
$18.0M |
42% |
$9.3M |
21% |
August |
$15.6M |
38% |
$16.5M |
40% |
$8.8M |
22% |
September |
$15.5M |
38% |
$16.5M |
41% |
$8.4M |
21% |
My guess is that we'll probably see a two-level gaming barge along the lines (but probably a little smaller) of what the company has in place in the St. Louis and Kansas City markets (roughly 130,000 to 140,000 square feet of gaming space, 3,000-plus slots, and 100 table games). I also think there's a 100% chance the new casino will be bigger than the Horseshoe (68,000 square feet of gaming space, 1,863 slots, and 62 table games).
St. Charles
In the St. Louis market, Ameristar has fallen behind rival Harrah's, since Harrah's opened its relocated and expanded poker room in March. A marketing war hasn't helped Ameristar's profitability, either. And in the third quarter, Ameristar's decision to cut promotional expenses helped lead to a $400,000 drop in net revenue to just under $71 million, but it also helped property EBITDA increase by over $1 million to $22.9 million. Also, between August and September, Ameristar managed to regain some lost share.
New rival Pinnacle Entertainment
Black Hawk
Ameristar Black Hawk -- rebranded this past April -- saw net revenues double to over $22 million, helping the property increase its share of the Black Hawk gaming market from 9% to 15%. The property is now producing meaningful EBITDA, with EBITDA up to $7 million from essentially nil, and at a healthy 31.4% margin. Neilsen said that he sees 2007 EBITDA in the $30 million range, "give or take a million or two either way." The 536-room hotel is on track for completion in Q4 2008, and Neilsen projects EBITDA at a minimum of $60 million within a year of the hotel's introduction.
Vicksburg
The Vicksburg market in general has seen elevated levels of business post-Katrina, helped by the loss of gaming capacity along the Mississippi Gulf Coast to the south. And for the past several quarters, Ameristar management has cautioned that, with the return of more and more casinos to the Gulf Coast -- including Harrah's Grand Casino Biloxi and MGM Mirage's
While management reminds us that business will return to more normalized levels, the company remains quite bullish on the Vicksburg market. Moreover, the only thing holding Ameristar back is the property's own constraints. Those problems will be fixed, with a casino expansion (adding 800 gaming positions), a new VIP club, and a much-needed parking garage -- all due for completion in Q3 2007.
Nielsen did note on the conference call that the expansion, which originally was supposed to be complete by Q3 2006, has gotten pushed back, in part because of the new law that allows part of the gaming facility to be on land. Nielsen's explanation:
We are implementing a process that as far as we know hasn't been done, at least that anybody knows of. We're actually building up the boat and then ... pouring concrete underground ... to support the facility so it will no longer be resting in the water. And we've had some design issues.
For more on Ameristar, check out:
- Fight Night Restarts Ameristar St. Charles
- A Star in Colorado
- Re-Evaluating Ameristar: St. Louis Part 1 and Part 2
- Re-Evaluating Ameristar: Kansas City
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Fool contributor Jeff Hwang owns shares of Ameristar Casinos. The Fool has a disclosure policy you can bet the farm on.