Ahead of Monday’s earnings report, shares of Regal Entertainment (RGC) are within 1% of their 2006 high and up almost 9% so far this year. Given the $1.20 annual dividend, the total return is even better. Coming off the dismal 2005 box office performance, RGC shares have responded to renewed growth in attendance and revenue in 2006 and to the growing likelihood of a liquidity event for its 49.9% owned joint venture, National Cinemedia. I think 2Q earnings and commentary about 3Q trends will move the shares even higher and stand by my target of $23-24.
RGC is expected to report EPS of 27 cents, revenues of $685 million, and EBITDA of $154 million for 2Q06. I think there is modest upside to the numbers because the implied revenue growth is 6% while the box office rose 8% in the quarter according to BoxOfficeMojo.com….
“A looming capacity expansion in hotel rooms and casino space, rising gas prices, an uptick in airfares, the possible peaking of the Las Vegas residential real-estate market, and the ongoing risk of global terrorism make the stocks of major casino operators good candidates for shorting.” — Steve Birenberg, StreetInsight.com, Long/Short Investor, 8/24/2005
OK, so I was one year too early.
Last summer, I suggested shorting Station Casinos (STN), Boyd Gaming (BYD), Las Vegas Sands (LVS), and (WYNN). In the same article I mentioned these trends were negative for MGM Mirage (MGM) and Harrah’s Entertainment (HET).
As it turned out, 4 of those stocks are well below the price on the date of that post: BYD, -29%; STN, -20%; MGM, -12%; and HET, -9%. LVS and WYNN have defied gravity and risen sharply, however: LVS, +80%; WYNN, +40%. The later two have benefited from an unusually favorable growth profile as they open new casinos in international markets. I think their time is up and the decline of the last few days is just the beginning. Both remain at huge premiums to the more mature operators even on earnings a few years out when all their new projects will be open. In the current market environment, I don’t think the premium can last.
As for the general theme of being short gaming stocks, I believe that each reason I initially outlined a year ago remains in place. In fact, I think that you can drop the qualifiers like “possible” and “ongoing”. Today’s reality is that capacity expansion is hitting just as demand is turning lower. Funny how it always seems to work that way. The capacity expansion will remain above trend for several years so don’t look for any sustainable rebound in casino stocks. They are just going lower.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-28 09:01:082006-07-28 09:01:08Casino Stocks Have Lots of Downside
Comcast (CMCSA/CMCSK) reported another strong quarter with most key financial and subscriber measures beating estimates. On top of similar strength in 1Q, management is raising guidance. Revenue growth in the cable division (well over 90% of the company) is going up to 10-11% from 9-10%. EBITDA growth is now projected “at least” 13% higher vs. prior expectations of 10-11% growth. Revenue generating units are now expected to grow 60%, or by 4.2 million, up form previous guidance of a 3.5 million gain. The higher RGU growth means more equipment in customer homes so capital spending guidance is also going up by about 10%. There is no change to guidance for conversion of 25-30% of EBITDA to free cash flow.
Overall, the strong quarter and increased guidance indicates that Comcast’s offer of the triple play bundle is driving financial results. More importantly, the accelerating gains in revenue generating units is improving Comcast’s position for the day (at least several years from now) when AT&T (T) and Verizon (VZ) are competitive with their own bundle on a broad geographic scale. In other words, the triple play is driving near-term growth in revenue, EBITDA, and free cash flow while also improving the company’s long-term competitive position. That should lead to a better valuation shares whether you use EBITDA, free cash flow, or EPS. Consequently, I see Comcast shares continuing to move higher with a target in the upper $30s increasing realistic in 2006…..
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-27 15:28:012006-07-27 15:28:01Comcast Reports Another Good Quarter: Time For The Bears To Hibernate
E.W. Scripps (SSP) shares should rebound after the company reported better than expected 2Q06 EPS and provided guidance in line with current expectations. Most importantly, guidance for 2H06 advertising growth at Scripps Networks was not as bad as I and others had feared. Upside for SSP is limited, however, due to the premium valuation relative to pure play peers in the cable networks, newspapers, and broadcast TV. The premium is well deserved but I don’t expect to expand.
SSP reported EPS of 64 cents on revenues of $642. EPS were 2 cents above the high end of guidance and 4 cents above consensus. Scripps Networks and the internet businesses look to have had strong quarters. Profit performance at Scripps Networks looks especially solid as despite moderating revenue growth, management was able to drive margins.
On the conference call, management led off with a defense of Scripps Networks. Clearly, they recognize that concerns over the future growth of the cable network business is what is behind the more than 10% decline in SSP shares this year and the substantial multiple compression the stock has suffered….
NTL Holdings (NTLI), have been under severe pressure lately due investor fears about the intense competitive environment for broadband in the UK. As the largest cable company in the UK, NTLI has significant market share in broadband. Even though about 70% of its subscribers take the triple play bundle of cable TV, broadband, and telephony, investors are concerned that collapsing broadband pricing in the UK will lead to a loss of NTLI’s broadband subs and/or a sharp drop in its monthly revenue per user (ARPU).
These fears really began to gain steam a few months ago when Carphone Warehouse began to offer free broadband with its wireline and wireless phone subscriptions. The offer did not target NTLI’s customers, and really wasn’t all that attractive to them, but investors saw it as the first shot in a broadband pricing war. Since then NTLI has said on a few different conference calls that it had seen little impact on its sub base or its ARPU from the Carphone offer. Yet the shares kept sinking….
Apparently, Motorola (MOT) believes its stock price is too cheap. The company just announced that it will complete its prior $4 billion, three year repurchase plan 2 years ahead of schedule by immediately buying $1.2 billion in shares. Additionally, a new $4.5 billion, 3 year repurchase has been approved by the Board. According to the press release, the new plan represents 9% of current shares outstanding.
MOT has $10.1 billion of net cash on its balance sheet representing cash and equivalents of $14.4 billion and debt of $4.3 billion. Even after the repurchase, the company has plenty of firepower to complete a large acquisition, so by itself the latest announcement won’t eliminate the risk of a major deal.
Look for additional announcements out of MOT today and tomorrow in conjunction with the company’s annual analyst meeting. At the meeting, analysts will be looking for new products and an update on potential margin expansion in the handset business.
Northlake remains long MOT, looking for mid-$20’s price to exit the position.
After 17 days in theatres, Pirates of the Caribbean: Dead Man’s Chest is the fastest grossing film in history. The movie remains comfortably on track to produce better than expected profits. In fact, benefits to Disney (DIS) relative to current expectations could begin as soon as the September quarter since the film seems likely to more than recoup its production and marketing costs during its global theatrical run.
Most analysts assume that a film will lose money in its theatrical window only to produce profits later in home video and television rights. DIS does face a potential timing issue in its June quarter when the bulk of marketing costs for Pirates and Cars are likely to be booked. Pirates wasn’t released until July so this could create a timing mismatch. Pirates is the fastest film to reach $300 million, in just 16 days. The film is running $21 million ahead of the prior champ in that category: Revenge of the Sith. Weekday and weekend grosses are now both running ahead of Sith, which went on to gross $380 million. The only real question now for Pirates is whether it can catch Shrek 2 and The Phantom Menace to become the #2 grossing movie moving of all-time….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-24 08:45:362006-07-24 08:45:36Weekend Box Office Still Looks Good For Disney and Regal
Apple Computer is trading off over 1% pre-market due to Dell Computer’s ugly preannouncement. While the health of the PC market is clearly in question, I would note this from Dell’s press release:
“These estimates primarily reflect aggressive pricing in a slowing commercial market worldwide”
For the time being AAPL’s fundamentals are driven by market share gains in consumer PCs. In fact, I know over a half dozen individuals and families who have switched from windows machines to Macs in the past two months. Purely anecdotal I know but combined with AAPL’s incredibly strong laptop sales in the last quarter, I don’t think there is necessarily a read through from Dell to Apple. In fact, maybe Apple is part of Dell’s problems.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-21 10:43:172006-07-21 10:43:17Dell Blows Up – Little Impact on Apple
My friend Jeff Bagley did his usual great job covering the Apple Computer (AAPL) earnings release and conference call. I fully endorse his bullish view but since I’ve written extensively on AAPL, I wanted to offer a few observations of my own.
As I have been saying for some time, I think the key to the quarter and the outlook is Mac sales. And the news from the June quarter is very good. MacBook unit volume was 798,000, a 61% increase vs. a year ago. There was plenty of anecdotal evidence that laptop sales were strong but this is really a good figure. I think it is 100,000 or more units ahead of some analyst estimates. The momentum appears very good and the next two quarters will show similarly huge increases. To put the 798,000 in perspective, in the seasonal strong September and December quarters of 2005, AAPL averaged about 600,000 laptop sales.
Despite the huge increase in laptops, overall Mac units were up only 12% because desktops down 23% from 2005. It still isn’t clear when the new Intel desktops for the professional market will ship but I think the huge jump in laptop sales last quarter bodes very well for the quarters after the desktops finally ship. So if you believe that MacBook momentum will be sustained for at least several more quarters, overall Mac growth will get a huge boost when the new professional desktops ship. This should give some comfort to the 2007 growth profile.
As for iPods, there was clearly relief when the unit figure came in at 8.1 million…..
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-21 10:41:092006-07-21 10:41:09Some More Thoughts on Apple
Thanks to my friend and fellow StreetInsight.com contributor, Jeff Bagley, for again allowing me to reproduce his excellent summary of Apple’s June quarter earnings report and conference call. All is well for Apple as I have been repeatedly saying despite all the gloom and the declining stock price. The shares have lots of upside left even after today’s 11% gain. Here is Jeff’s summary:
Once again, Apple Computer (AAPL) blew away analysts’ estimates, with most key metrics above expectations. Although guidance was muted, as usual, the stock was up substantially after hours as investors breathed a sigh of relief that Apple’s resurgent growth will likely continue apace. Higher Gross Margin Fuels a Huge Earnings Beat
The company reported earnings of $0.54 a share, up 46% over the same period last year, and a whopping $0.10 ahead of analyst expectations. Revenue was essentially in line with expectations, at $4.4 billion, but the company posted a gross margin of 30.3%, up sequentially and well ahead of management guidance and consensus of 28.5%. Management noted that the component commodity environment was very favorable for Apple in the third fiscal quarter, and should remain so in the September quarter. Sigh of Relief on Unit Shipments
Importantly, Mac shipments of 1.327 million units outpaced expectations of about 1.2 million to 1.25 million units. iPod units shipped, meanwhile, totaled 8.11 million, ahead of lowered expectations. These numbers came as a great relief to investors, as there was an incredible amount of hand-wringing regarding unit shipments throughout the quarter. Uptake for New Intel Macs Very Encouraging
The “halo effect” is alive and well. Management is “thrilled with the growth of our Mac business,” indicating that 75% of the Macs sold throughout the quarter had Intel (INTC) inside. Based on a survey at the company’s stores, almost half of customers buying a Mac were new Mac users. That’s huge, and supportive of my thesis that Apple has a tremendous market share opportunity ahead of it.
The company is very well positioned for increased sales for the back-to-school season now that the Intel chipset transition is nearly complete. (The transition will likely be 100% complete by year-end.) Management noted that sales to the education market were extremely robust in the quarter. Look for New iPod Products Soon
Apple is very secretive about its product pipeline, so little was said in terms of timing or specifics of new iPod products. Steve Jobs, in the press release, did note, however, that they “…are extremely excited about future iPod products in our pipeline.” I don’t believe he would say that if new product introductions weren’t imminent.
Recall that some analysts were speculating that they wouldn’t have an iPod product upgrade in time for the back-to-school selling season. While that still might turn out to be true, I and others are looking for new product announcements in early August, when the company holds its developers conference. Apple stock has typically performed well as new products are announced….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2006-07-20 11:44:542006-07-20 11:44:54Apple is Back and There is More to Come
