Should Investors Follow John Rogers' Bullish Picks?
Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
John Rogers, the Chairman and CEO of Ariel Investments, has managed to deliver a sweet gain of 289% since the market bottomed in 2009. In a recent interview with CNBC, he expressed his bullish attitude towards International Speedway (NASDAQ: ISCA) and Madison Square Garden (NASDAQ: MSG).
While Madison Square has been increasing steadily for more than three years, from $19.50 per share to $60.70 per share, International Speedway has been fluctuating in the range of $22 - $34 per share during the same period. Let’s take a closer look at the two companies to see whether or not we should follow John Rogers into those stocks.
International Speedway – declining revenue with fluctuating profits
International Speedway is considered the leader in the major motorsports entertainment activities, operating around 13 of the nation’s big motorsports entertainment facilities in different areas in the U.S. The business derives its revenue from three main sources: Admissions, Motorsports related, and Food, beverage and merchandise.
The majority of its revenue, $417.7 million, or 68.2% of total revenue, was generated from the Motorsports related business, which includes television media right fees, promotion and sponsorship fees, hospitality rentals, advertising revenue, and parking and camping revenue. Admissions ranked second, with $136 million in revenue, while the Food, beverage & merchandise business contributed nearly $46 million in sales in 2012.
What worries me is the consistent decrease in revenue and the fluctuating net income in the past five years. Since 2008, revenue has declined from $787 million to $612 million while net income has fluctuated in the range of $7 million to $135 million. In 2012, it generated only $55 million, or $1.18 per share.
The positive point is that International Speedway has a strong balance sheet. As of February 2013, it had $1.26 billion in equity, $245 million in cash and investments, and only $277 million in debt. Furthermore, the company had deferred tax liabilities of $329 million, which could be considered an interest-free loan from the government. At $34 per share, International Speedway is worth $1.57 billion on the market. The market values the company at 8.65 times EV/EBITDA. The dividend yield is quite small at 0.7%.
The peer is cheaper with a higher dividend yield
Compared to its smaller peer Speedway Motorsports (NYSE: TRK), International Speedway has a higher valuation. Speedway Motorsports is also the leader in promoting and sponsoring motorsports activities, operating eight facilities in four top-ten media markets in the U.S.
Recently, the firm reported a declining performance in the first quarter of 2013. Revenue decreased slightly, from $84.8 million in the first quarter 2012 to $84.2 million in 2013. It had a net loss of $1.4 million, compared to a profit of $146,000 in the first quarter last year. For the full year 2013, Speedway Motorsports confirmed its full year earnings guidance of $0.90 - $1.10 per share, excluding any non-recurring charges.
Speedway Motorsports is trading at around $18 per share, with a total market cap of $755.3 million. The market values the company at a lower valuation than International Speedway, at 7.34 times EV/EBITDA. Moreover, investors could get a better dividend yield at 3.4% from Speedway Motorsports.
Madison Square – steady growth but expensively valued
Madison Square Garden (MSG) focuses on sports, entertainment, and media businesses, operating different famous sports franchises including the New York Rangers of the National Hockey League, the New York Knicks of the National Basketball Association, and the Connecticut Whale of the American Hockey League.
The business operates in three main segments: MSG Media, MSG Entertainment, and MSG Sports. Most of its operating income, $228.3 million, was generated from the MSG Media segment while the MSG Sports segment delivered more than $13 million in profit. MSG Entertainment produced a loss of more than $9.3 million in fiscal 2012.
Madison Square Garden has consistently grown its top line and bottom lines in the past three years. While revenue increased from $1 billion in 2009 to $1.28 billion in 2012, its net income rose from $28 million to $107 million during the same period. Madison Square Garden is trading around $60 per share, with a total market cap of $4.6 billion. The market seems to value the company quite expensively, at 12.8 times EV/EBITDA. The company does not pay a dividend.
My Foolish take
Maybe, John Rogers likes International Speedway and Madison Square due to their well-positioned brands with great content, which give them protective moats. However, quantitatively speaking, I am not so impressed with both of those two stocks that John Rogers is bullish about. Personally, I prefer Speedway Motorsports due to its lower valuation and decent dividend yield.
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Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends International Speedway. The Motley Fool owns shares of International Speedway and Madison Square Garden. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!