Meaningful pricing gains in the future will remain difficult to capture relative to the past, given the price sensitivity of the average consumer.
Our thesis on narrow-moat International Speedway
is intact following the close of the company’s second quarter. We still anticipate that meaningful pricing gains ahead will remain difficult to capture relative to the past, given the price sensitivity of the average consumer. However, pricing appears to be stabilizing, with average ticket price for Cup races flat year over year, after declining 3% in the second quarter of 2016. The main struggle remains attracting customers to the track (with admissions declining 6%); the company is attempting to do this through youth outreach and special packaging (VIP), which we think this could lead to modest incremental growth. Our prior model forecast 1%-1.5% growth in admissions over the long term, and we’d expect that to come from a slight uptick in volume and more modest growth in price ahead, particularly for key races like Daytona. We don’t plan any material adjustment to our $34 fair value estimate, and we view shares as slightly overvalued, trading at 23 times our 2017 EPS estimate, with average EPS growth of only 11%
implied over the next five years in our forecast, which is bolstered by share buybacks.
Jaime Katz, CFA, is a senior equity analyst for Morningstar.
The company reiterated its 2017 outlook, which called for revenue of $660 million-$670 million and EPS of $1.50-$1.65, both in line with our prior forecast for $670 million in sales and $1.63 in EPS. Furthermore, we have little deleveraging baked into our expense profile, with our expected general and administrative ratio declining by just 10 basis points and motorsports-related expenses ticking down another 10 basis points, but with EBIT margins falling 20 basis points year over year to 16.3%, as depreciation rises and more than offsets other expense gains.
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