Gaming company’s comeback ‘stunning’

Quietly, Isle of Capri Casinos has won its way into the wallets of investors.

Since March 3, when shares of the St. Louis-based regional casino operator hit an all-time low of $2.04 on the Nasdaq National Market, Isle's stock price has gained more than 400 percent in value.

So what changed?

Isle, which operates 18 casinos, primarily in the Midwest and South, turned a third-quarter net loss from a year ago into a $46 million profit. Revenues grew 13 percent, although helped by a $95 million insurance settlement from its 2005 Gulf Coast hurricane damages.

Still, Wall Street took notice.

"The rebound in shares has been stunning," Macquarie Securities gaming analyst Joel Simkins wrote last week. He highlighted Isle's improved liquidity and stabilizing revenues and operations.

The company's casinos have benefited from improving trends in regional markets, similarly experienced by competitors Penn National Gaming, Ameristar Casinos and Pinnacle Entertainment.

Isle President Virginia McDowell said during the company's quarterly earnings conference call in March that the number of visits by customers have picked up, much to the detriment of casinos in Las Vegas and Atlantic City.

"We are benefiting from incremental visits as a result of improving our operations," McDowell said. "We certainly hope this trend continues."

Simkins said Isle operates in jurisdictions best suited for expansion. The company's three Missouri casinos have been helped by liberalized gaming laws enacted by voters last year. Similar rules will go into effect in Black Hawk, Colo., in July, where Isle runs two casinos 38 miles west of Denver.

Gaming could also expand in Florida, where Isle operates a racino in Pompano Beach, about 40 miles north of Miami.

"One of the most attractive features of the Isle story is the company's cash flow diversification," Simkins said.

Unlike Penn National, Isle of Capri doesn't appear in conversations about regional casino operators looking to expand in Las Vegas.

Penn has $1.5 billion in cash. Isle's undrawn revolver is about $325 million.

Isle did dabble in Las Vegas in 2000, owning the now closed Lady Luck downtown for two years.

Simkins said the lack of exposure in Las Vegas and Atlantic City is one of the company's best features.

"(The) two markets will remain pressured by competitive supply additions in future years," Simkins said.

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Former Binion's Horseshoe boss Jack Binion said he's interested in owning a Las Vegas casino.

But a deal isn't percolating.

"It's a tough market right now," said Binion, who sold his Horseshoe casinos in Indiana, Mississippi, and Louisiana to Harrah's Entertainment in 2004 for $1 billion.

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871. He blogs at lvrj.com/blogs/stutz.