Golden Entertainment had plenty to celebrate in the fourth quarter. Revenue hit a record, helped by contributions from the company’s Laughlin properties and higher slot route and property revenue. And the company’s loss narrowed from a year earlier.
But the result was mixed with Wall Street. Although revenue topped forecasts, earnings missed and the stock sold off sharply, dragged down with the wider market. The main body of the company’s earnings document didn’t mention the coronavirus pandemic, but the footer list of forward-looking statements warned the fallout from the virus may affect future results.
In a statement, Golden Entertainment, which owns hotel-casinos in Southern Nevada and Maryland and slot routes in Nevada and Montana, said its net loss was $7.7 million, or 28 cents per share, for the three months ended Dec. 31, compared with a net loss of $25.3 million, or 90 cents per share, a year earlier.
Wall Street analysts surveyed by Seeking Alpha had expected 30 cents in earnings per share.
Golden Entertainment shares fell $1.92, or 19.57%, to close at $7.89 on the Nasdaq. With investors spooked by the coronavirus crisis, the Dow had its biggest single-day percentage drop since 1987, dipping 9.9 percent, or more than 2,300 points.
Golden Entertainment’s adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure excluding one-time costs, rose 25.1% to $43.1 million from $34.4 million. The 2019 results include the operations of the Edgewater and Colorado Belle hotel-casinos in Laughlin, which Golden Entertainment acquired Jan. 14, 2019.
Fourth-quarter revenue rose 15.2% to a record $242.1 million from $210.1 million and topped the $327.6 million forecast by Seeking Alpha-polled analysts.
In the statement, Golden Entertainment CEO Blake Sartini said his company was working to complete the $110 million renovation and rebranding of the Strat, once called the Stratosphere. Makeovers of the main casino, front desk and VIP check-in area and the remodeling of 126 rooms were finished in the quarter, he said. Nearly 600 rooms are now remodeled, approximately 25% of the hotel’s room base, Sartini said, adding that regular room updates will come in the company’s capital plan.
As of Dec. 31, the company invested $90 million on The Strat renovations since June 2018, including $21 million in the 2019 fourth quarter.
Sartini added that the company’s Nevada and Montana slot routes are yielding organic growth and that multimarket expertise will poise the company to expand into new jurisdictions.
“In 2020, our focus will be on optimizing business operations and generating cash for our balance sheet,” Sartini said, “which will allow us to reduce leverage and provide strategic flexibility as we evaluate future opportunities.”
Analysts have had mixed sentiments about Golden Entertainment’s short-term future. On March 2, as Seeking Alpha reported, JP Morgan cut its rating on Golden Entertainment to “neutral” from “overweight,” saying it sees more downside risk than upside potential. JPMorgan has a year-end price target of $19 for the stock.
“While we still view GDEN’s valuation as attractive (24% 2021 estimated free cash flow yield), and all things equal, 2020 should still be an inflection year as Strat disruption subsides,” analyst Daniel Politzer told Seeking Alpha.
Jefferies gaming analyst David Katz said investors should “take refuge” because Golden is still producing “considerable” cash flow and will reduce leverage.
“The strength of the quarter juxtaposed with the tumultuous capital markets and economic environment suggests dissonance around the stock,” Katz said. “For sure, the completion of the capital expenditures for the Strat and positioning suggest a bullish pivot, which is overshadowed by the looming pressure on the Strip.”
Added Macquarie Securities gaming analyst Chad Beynon, “It is inevitable that the virus will impact business operations in some way but Golden is relativity insulated given its regional exposure.”
For the 12 months ended Dec. 31, Golden Entertainment had a net loss of $39.5 million, or $1.43 per share, compared with a loss of $20.9 million, or 76 cents per share, a year earlier.
Twelve-month revenue rose 14.3% to $973.4 million from $851.8 million.
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