Has International Speedway Hit a Speed Bump?
Short-term attendance hiccups could alter long-term earnings power.
Narrow-moat International Speedway (ISCA) delivered a mixed second quarter, with soft attendance offset by improvements in the corporate sponsorships business. Total admissions revenue contracted 10%, to $25.7 million, hindered by weather (snow at Martinsville led to a postponement), lower capacity at ISM and secular headwinds. Weather headwinds have continued in the third quarter with a rain delay at Michigan and the recent Chicagoland heatwave leading to another potential quarter of admissions declines. Our main concern surrounding these short-term attendance hiccups is that they could alter long-term earnings power. First, if weather is difficult in the current year, fans could be more hesitant to purchase tickets in advance next year. And second, for first-time event attendees, a poor initial experience could prevent them from returning. We don’t think this should weigh materially on near-term cash flow potential, but still believe fans remain the lifeblood of both the sport and the broadcast revenue stream for ISC, thus we continue to carefully watch attendance and viewing trends to support our long-term thesis.
ISC reiterated its full-year outlook calling for sales of $680 million-$695 million and earnings per share of $1.90-$2.10, which are in line with our prior $691 million and $1.98 sales and EPS forecasts, respectively. Given that we don’t plan to change our longer-term view on the business and its sustainable demand levels at this time, we don’t plan any material change to our $38 fair value estimate, and view shares as overvalued. Supporting our valuation is average admissions growth of 1%, motorsports related revenue increases of 3%, concession hikes of 1%, and corporate expenses that trail off modestly over time (G&A falls by about 100 basis points over the next decade to 16.2%). Uncertainty remains around the format of the next sponsorship after the Monster contract concludes in 2019, which could alter our valuation depending on structure and duration.
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Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.