Twin River stock surges nearly 11% as casino company estimates 2020 cash flow increase

Wednesday, February 12, 2020 11:55 AM

Rhode Island-based Twin River Casinos Worldwide said pending acquisitions of properties in Missouri and Mississippi could raise a key cash flow measure for 2020 by some 8% from the midpoint of its preliminary ranges.

Twin River’s estimates for the fourth quarter and full year ended Dec. 31 were outlined in a statement late Monday. The results factored in the addition of the Isle of Capri Casino in Kansas City, Missouri, and the Lady Luck in Vicksburg, Mississippi, which Twin River agreed to buy in July for $230 million from Eldorado Resorts.

Twin River expects the deal to close in this year’s second quarter.

Wall Street seemed to love the preliminary results. Twin River shares surged 10.89% on the New York Stock Exchange, up $2.90 to $29.54.

“We continue to like the opportunity in Kansas City, and think (Twin River) should be able to generate a solid return on their planned $40 million growth (capital expenditure) project post close,” SunTrust Bank gaming analyst Barry Jonas wrote in a note to investors Tuesday.

Twin River’s statement did not factor in the acquisition of three Black Hawk, Colorado hotel-casinos, Mardi Gras, Golden Gates and Golden Gulch, which the company acquired in January for $51 million from Affinity Gaming.

Twin River, which owns and manages casinos in Rhode Island, Mississippi and Delaware, estimated its 2020 adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure, will be $180 million, up 8% (or $190 million on a run rate basis) from the midpoint of year-earlier ranges.

For the fourth quarter, Twin River put preliminary revenue at $129.4 million to $131.4 million, a 16.2% to 18% increase from $11.4 million a year earlier. The company put preliminary adjusted EBITDA at $38.6 million to $41.6 million, a 4.3% to 10.8% jump from $37 million a year earlier.

But Twin River expected fourth-quarter net income to drop. The company put preliminary net income for the three-month period at $12.1 million to $14.7 million, a drop of 45% to 33.5% from $22.1 million a year earlier.

Notably, Twin River estimated fourth-quarter operations for its Rhode Island casinos, Twin Riverton and Tiverton. Revenue will be $69 million to $70 million, net income will be $15.8 million to $17.1 million adjusted EBITDA will be $28.4 million to $30.4 million.

In the statement, Twin River CEO George Papanier said strong performance across the company’s portfolio and New England casino market stabilization after June’s entry of Wynn Resorts $2.6 billion Encore Boston Harbor, buoyed his spirits.

“We expect this momentum to continue into 2020, which is reflected in our full-year 2020 guidance,” he said. “Over the last year or so, the steps we’ve taken to strategically and opportunistically grow and diversify the company, have created significant shareholder value, returned meaningful capital and leave us well positioned for long-term growth.”

Jonas told investors Twin River’s Rhode Island results were encouraging and potentially suggest a bottoming out of estimate revisions.

“Based on management’s qualitative commentary regarding cost containment initiatives and (Rhode Island) segment performance, we see the 2020 $180 million EBITDA guidance as highly achievable assuming we don’t see another material leg down in (Rhode Island),” Jonas wrote.

Given Twin River’s better-than-expected outlook, SunTrust raised its price target for the company to $31 from $26.

For the fourth quarter at the Hard Rock in Biloxi, Mississippi, Twin River expects $31 million to $34 million in revenue, $3.7 million and $4.4 million in net income and $8.6 million and $9.6 million in adjusted EBITDA.

For the fourth quarter at Dover Downs in Dover, Delaware, Twin River expected fourth-quarter revenue of $27.4 million and $27.8 million, net income of $1.7 million and $2.3 million and adjusted EBITDA of $5 million to $6 million.

Twin River Chief Financial Officer Steve Capp said his company bought back 2.5 million shares in 2019, cutting the total outstanding shares by 22%. More buybacks could be coming, given that Twin River’s board of directors agreed Tuesday to boost the company’s capital return program by $100 million.

Stifel Financial gaming analyst Brad Boyer predicted Twin River’s Tuesday stock price surge and day earlier and said Twin River’s preannounced fourth-quarter and full-year estimates far exceeded prior forecasts and consensus projections. Nevertheless, the investment bank expressed some puzzlement.

“The question on everyone’s mind is why preannounce?” Boyer wrote. “We believe the company is simply looking for a way to more openly discuss several potentially transformational news items that have emerged over the past several weeks with investors, as these announcements have attracted little fanfare.”

Boyer reiterated his “buy” rating on Twin River’s shares, citing the casino company’s ability to adjust in Rhode Island and its commitment to return capital to shareholders.

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