Raising our YE20 ERI target price from $26 to $44. ERI’s stock is up 58% since reporting earnings and has blown through our prior target as reports on the reopening process have been positive and as sports/iCasino gains momentum. We like the long-term story and still see significant upside potential over time. Our new target now assumes a meaningful contribution from sports and iCasino in our SOTP calculation. See Exhibit 2.
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Each year we scour through annual proxy statements to learn about changes in corporate governance and shareholder alignment, and we publish the results. Specifically, we study three broad categories: 1) CEO compensation, including how much and how it’s derived, 2) CEO equity ownership, and 3) board composition.
Earnings season is now largely over, and we come away with 15 developing themes. We discuss with charts for each theme. Please click here to view the full report.
The current crisis has been much worse for gaming and lodging companies/stocks in comparison to 9/11, but we also think 9/11 offers some potentially interesting parallels worth considering, specifically regarding stock performance, travel trends, and the ultimate recovery. We’ll discuss.
This is a note we publish each quarter where we discuss key themes and refresh our thesis. We’re changing the format this time since we have multiple ratings changes and lots of topical ideas to cover.
Our view has been that timeshare businesses are better positioned in this crisis relative to other travel and consumer cyclical industries due to recurring revenue, significant liquidity, leisure over business travel, more drive travel, variable costs, and a generally healthier consumer demographic that we believe is also helped by the CARES Act. However, a concern we’ve heard from skeptical investors pertains to the loan portfolios and the potential for elevated default activity. In this week’s piece we examine those portfolios as well as historical write-offs, and our conclusion is timeshare is still better positioned, in our opinion.
In this week’s piece we discuss some considerations for medium to longer-term effects to our coverage from coronavirus once the infection rate peaks. We also discuss who we think wins and loses from these changes.
Yesterday we sent a survey to institutional investors involved in the gaming and lodging space. We received 43 responses over the past 24 hours. We show a summary of the results in Ex. 1. Thanks to all who participated!
Last night the Senate passed a >$2T stimulus package – the House is expected to vote on Friday. From our initial take we see at least three notable positives to highlight for our coverage: 1) $500B of federal funds for loans ($454B ex-airlines and national security); 2) help for consumers including tax credits for middle incomes as well as additional unemployment insurance; and 3) help for small business owners, including hotel franchisees.
Credit and liquidity are in focus given the highly precarious environment, and in this week’s piece we examine both factors for our coverage. Specifically, we look at covenants and the implied EBITDA decline before triggering a credit event for each company. However, we also believe current available liquidity and cash burn matter more in the near-term. Last week we showed an interactive cash burn model for gaming operators, since they would be most at risk in our coverage, in our view. We’ve updated that model which can be downloaded here, and we’ve also now built a new interactive cash burn model for our lodging stocks that can be downloaded here. Finally, in this piece we also examine how bond prices for our coverage have trended in recent weeks.
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