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Non-Tech : Argosy Gaming Co. (AGY) -- Ignore unavailable to you. Want to Upgrade?

To: Don Salty who wrote (246)	7/21/2000 8:13:49 PM
From: Ram Seetharaman	Read Replies (1) \| Respond to of 259

Friday July 21, 5:45 pm Eastern Time worldlyinvestor.com Sector of the Day Gaming Argosy Gaming: Worth a Chance By Glenn S. Curtis, Columnist The casino operator has been hit by uncertainties at its key facility, but industry trends favor it. Gaming companies have received a great deal of attention lately due to the consummation of MGM Grand's (NYSE:MGG - news) $6.4 billion acquisition of Mirage. This was a mammoth deal, but it was just one of a few high-profile acquisitions made over the past year. And the deals are likely to keep coming. One company I think is an ideal candidate to be acquired is Argosy Gaming (NYSE:AGY - news). Even if it's not, I think that the stock has substantial upside potential given its reputation as a great operator, and its ability to deliver on the earnings front. Growing Gambling Markets Argosy owns properties in up-and-coming gaming jurisdictions including Illinois, Missouri, Louisiana, Iowa, and Indiana. And while the company recently announced that it will fall a bit short of expectations in its second-quarter earnings, to the tune of 5 to 8 cents a share, Argosy has had a history of providing upside surprises come earnings time. It is the envy of the smaller operators not just for its locations, but for its capable management team and for the ability to generate consistent growth in foot traffic. For the record, the second-quarter slip-up is due to what is perceived as a temporary softness on the revenue line with no single property alarmingly weak. In short, it appears to be a one-time slowdown, for no apparent reason. Further, it doesn't even seem to be indicative of a larger trend: this is the best second quarter in the company's history, and the rest of the year should be strong. Potential investors should be aware that the company trades at just 8.6 times 2000 earnings estimates, which call for Argosy to earn $1.58 per share, and at only 7.8 times 2001 estimates, which call for earnings of $1.75 per share. An even more compelling case for the company can be made that since EBITDA (earnings before interest, taxes, depreciation, and amortization) -- a great measure of operational prowess -- is expected to increase more than 15.3% this year to $181.8 million. In short, tell me where else you can buy an established company in the gaming industry that is expected to show this type of earnings and EBITDA growth, that is also expected to cover its interest (on its debt) by more than 4 times and that is still a relative unknown. Questions About Indiana Despite attractive valuations the stock recently sold off on concern that Conseco Entertainment's plan to sell its 29% interest in a gambling facility in Lawrenceburg, Indiana it jointly runs with Argosy and several other parties. Concerns have arisen that Conseco's sale could force all the parties to sell out. But Argosy is not precluded from making a bid on the entire facility or on Conseco's interest, and it will likely wind up owning it outright down the line. Until it works out a price, however, which it's attempting to do now, investors may be hesitant to get involved. Frankly, I think the two parties will work out a deal where Argosy acquires the Conseco interest, and that down the line the effect of this transaction will actually attract suitors which have sat on the sidelines rather than trying to partake in the uncertainties associated with a partnership. I say this because both parties know that this will be a protracted argument. Argosy wants the stake in Lawrenceburg and Conseco needs the cash for its own operational purposes. But investors know the stakes: Lawrenceburg is responsible for more than 50% of the consolidated revenues of Argosy and north of 60% of the consolidated EBITDA. So a forced sale could certainly put a damper on the stock's near-term prospects. Continued Improvement Seen That said, operating income increased at each of its other casinos in the first quarter. These numbers will continue to improve as more and more gamblers seek action outside of the more traditional Las Vegas and Atlantic City markets. Argosy has no immediate need for cash and will not like to have to tap the equity markets short of going on an acquisition tear. With this in mind, what is a fair price for Argosy with the expectation that Lawrenceburg remains part of the company's arsenal? I think that a fair price for the company, as an acquisition candidate or a standalone, is $20 a share given its growth potential. Keep in mind that even at that price Argosy would still trade at just 11.4 times 2001 estimates. Down the line and acquisition would be merely icing on the cake. Two companies I can think of that have the deep pockets that are looking to expand and would consider facilities outside the Las Vegas and Atlantic City markets are Harrah's (NYSE:HET - news), and MGM Grand (NYSE:MGM - news). Glenn Curtis is an analyst for worldlyinvestor.com. Prior to working at worldlyinvestor.com, he was an analyst at InsiderTrader.com, a financial Web site, and at Cantone Research, a brokerage firm in central New Jersey. Curtis is series 6, 7, 24, and 63 licensed. He does not have a position in any of the companies mentioned. Positions can change at any time.