Pershing has remained quiet, and gold has corrected quite a bit. It is again around critical levels, and needs to bounce strongly to improve the sentiments. Maybe, $1200-$1450 will be the range for a long time. For this $1200 has to hold when tested. Most of the gold stocks are again around their yearly lows, and investors are hoping that gold starts the expected rebound from the lower end of the range. Meanwhile, Barry Honig continues to invest in the company. He now owns more than 15.5 million shares. He has acquired nearly 800,000 shares in November itself. Increased insider purchases provides some indication about what the management thinks about the future prospects. What is required is for the company to provide the tentative timeline for start of production. That will give the investors an idea about the future plans. The results of its 2013 drilling program at its Relief Canyon Mine property were encouraging. All seven of the holes reported had intercepts with gold grades that are significantly higher than January 2013 resource estimate. Most of the holes contain gold intercepts that exceed the average grade of the ore mined in the late 1980s. The CEO Stephen Alfers stated that Relief Canyon is getting better, and bigger, and the company has an opportunity to substantially increase the overall grade of the Relief Canyon deposit compared to the deposit mined in the 1980s. The Company plans to announce results for the remaining holes when the data becomes available. The low-angle geometry of the Lower Zone, and the underlying gold-mineralized jasperoids was found favorable because a significant portion will be amenable to open-pit mining. This can help in achieving lower cost of production. After obtaining the relevant approval, the company is planning to drill at about 20 new sites. The drilling at these additional holes will cost approximately $500,000, and the company has funds for the drilling.
Correction in gold has had a significant negative impact on stocks from the sector. Goldcorp has just made its 52 week low, which is close to the lows made in June. The chances of a rebound are good because gold had shown some strength last time it hit $1200. In case $1200 holds, these stocks can be good for the long term. Even if gold can consolidate in $1200-$1450 range in the medium term, companies like Goldcorp can report better numbers going forward. Goldcorp has taken the impairment hit, and is making conscious efforts to lower the cost. However, there has been yoy increase in all-in sustaining costs in Q3'13. The all-in costs in Q3 came in at $992 /oz. compared to $801 /Oz. for Q3'12. This compares well will many peers, though there are even development stage companies with lower expected cost of production like Pershing Gold (PGLC). Goldcorp reported much lower sales in Q3, but remains on course to meet its production and cost guidance. The valuations are good as the stock is trading at 0.87 times its book value. Analysts are positive on the stock. One article on SA recently compared Goldcorp with Barrick Gold (ABX), and expressed strong preference for Goldcorp. The author mentioned that Goldcorp has implemented a successful and disciplined growth and capital allocation strategy. It has significantly lower debt and operates in low risk jurisdictions. The company is strongly focused on gold and the exposure to silver is low. The focus on cost reduction is also at the top of management's mind. Most of its mines saw lower costs compared to the previous quarter, and these efforts will improve the margins over the next few quarters. In the current volatile scenario, lower cost companies will be preferred, and Goldcorp may be a good bet for the long term. But gold has to hold, else all bets are off.
The correction in gold has run deeper than expected, but now it is very close to the strong support of $1200. The possibility of rebound is high, and the better valued stocks can be considered for long term investment. The best part about Iamgold is the dividend yield. Presuming that gold rebounds, these levels may appear extremely attractive in hindsight. Investors are already at 6% yield when they buy the stock. The high probability of rebound adds to possibility of capital appreciation. Iamgold is now trading at less than half its book value, and despite the adverse price scenario, has been able to achieve a net profit margin of 6% on a ttm basis. The operating margins are nearly 25%. The debt of $639 million is also not too bad if one considers the cash of $368 million. The trailing P/E is 17 and the forward P/E is around 15. The price to sales is around 1. The problem is the cost of production. At $1134 per ounce, the all-in-sustaining costs are high compared to many peers. For IAG, the costs increased 10% on a yoy basis in Q3. There are even some development stage companies with lower expected cost of production like Pershing Gold (PGLC). IAG is on track to achieve the targeted cost savings, and the impact may be more prominent in the forthcoming quarters. The company had announced a $100 million cost-reduction program at the beginning of the year. The target was for reduction in operating costs by $54 million, exploration expenditures by $40 million and corporate general and administrative costs by $6 million. The company has achieved 77% of planned reductions by the end of Q3 with savings of $38 million in Operations, $35 million in Exploration and $4 million in Corporate. So the company seems to be taking the right steps, and appears to be a good bet at current levels. However, gold needs to hold and rebound.
The stock has weakened even further, and seems to be going into another leg of selling. Going below $15 is not a good sign, and it needs to bounce immediately, and with force, to turn the tide. Fluctuations in earnings have eroded the faith of investors, and it has delivered a negative surprise in three quarters in a row. The unpredictability has made the investors wary. Excessive dependence on a few licensees for revenues makes the risk high. While this could be common in companies of this size, it is imperative for Acacia to diversify its revenue stream to stabilize things. Lawsuit outcomes have an associated unpredictability so it is difficult to base an investment solely on that. Many companies in the sector are making efforts to diversify the IPR portfolio to get regular inflow through licensing. For example Marathon Patents Group (MARA) is attempting a balance between diversified licensing revenue stream and enforcement through litigation. For Acacia, the decline from $45 to $15 is primarily based on fundamentals. Zacks has a strong sell rating and the full year EPS estimate for 2013 and 2014 is 33 cents and $1.16 respectively. This indicates that there may be some pain in the offing. The counter lawsuit by Microsoft (MSFT) does not help matters. Microsoft accused Acacia of claiming payments based on litigation tactics instead of demanding payments based on the actual valuation of its patents. Thankfully, the cash position of the company is good, and there is no debt on books. However, the recent repurchase program will surely lead to some depletion, and it remains to be seen whether it will have any positive impact on the sentiments. The repurchase program is for purchase in the aggregate up to $70 million of its common stock through the period ending May 14, 2014.
The earnings were again below estimates and the sell off was sharp. It is difficult to recover quickly from such a huge fall. The volumes were also extremely high. It has bounced a bit, but the volumes are going down. The losses declined sequentially and on a yoy basis. The revenues increased on a yoy basis, but there was a sequential decline. The net loss was $0.11 per share slightly below estimates, and the revenues were $90.5 million compared to the consensus estimate of $97.88 million. It added lesser customers in the quarter, but the total active customers grew 6% to 2.1 million. The ttm revenues are now around $370 million and the net loss is $14.11 million. In the full year 2012, the revenues were $330 million and the net loss was $19 million. For the nine months of the year, the net sales was $285 million compared to $245 million in the same period in 2012. The net loss also declined from $15.9 million to $10.9 million for the nine months of 2012 and 2013 respectively. So there have been improvements in the margins, but the company remains far from a net profit. The next few quarters will indicate whether it will be able to make decisive moves towards profitability. Cash and equivalents have also declined from $32 million on December 31, 2012 to $19.23 million on September 30. The inventory levels are also relatively high. Third party products comprised 75% of the sales, while proprietary products contributed around 20%. The supplements / wellness market is expected to grow at a good pace, and Vitacost can take advantage of the growth. The growth potential is evident from the success of companies like MusclePharm (MSLP) which has moved from near zero to $100 million in a few years. However, online retail is highly competitive, and it is difficult to achieve profitability. Vitacost surely needs to do better in the next few quarters to improve the sentiments.
The fortunes for the stock have turned around in the last couple of months. It has picked up momentum after the earnings. It is now 35% above 52 week low made in the middle of September. The company beat the analyst estimates for EPS by a small margin, but the reaction was very strong. The stock was on a downtrend for many months, and the short interest was around 14% before the earnings. The squeeze could have exaggerated the impact of the earnings, but it has been able to sustain the upward movement for a couple of weeks. The performance over the last 12 months has been okay with ttm revenues of $1.05 billion and net income of $65 million. This compares well with the 2012 numbers of $950 million and $60 million respectively. In the first nine months of 2013, the company has reported revenues of $831 million and a net income of $55 million compared to $732 million and $51 million for same period in 2012. Analysts are more positive on the prospects after the earnings, and an article on Motley fool preferred the stock to GNC Holdings (GNC) mainly based on better growth performance over the last few years. The valuations are good as the forward P/E is around 21, and the price to sales is only 1.56. Growth in vitamins / supplements market is likely to remain strong, and companies like VSI are in a position to leverage that to their advantage. Growth is evident from the performance of companies like MusclePharm (MSLP). MuslePharm has grown from scratch to $100 million in a few years. For VSI to continue its upward momentum, it needs to show consistency in performance over the next few quarters. One quarter of good performance cannot be too reliable, and the stock may be vulnerable to profit booking in case of slippages.
The stock has recovered smartly, and is now closing in on the higher end of the $36-$42 range. However, the volumes have not been too high. The resignation of the CEO had a negative impact on the stock, but rebound has been good. Analysts are also getting more positive on the stock, and consider it a good long term bet at current valuations. The expected improvement in fundamentals over the next few years is likely to be supported by the growth in the generics market. Generics comprise 51% of Teva's sales, and it will be able to increase sales even if it is able to maintain its market share. One analyst on seekingalpha stated that the loss in sales due to expiration of Copaxone patent is likely to be covered by other launches. The company recently got an Orphan designation for Treanda in indolent B-cell non-Hodgkin lymphoma. It has six months of pediatric exclusivity for the drug. Further, sales of ProAir and Qvar, will also help support growth. The R&D expenditure has been increased to support development of new products. Further, the company is expected to continue its focus on cost rationalization and efficiency. 70% of the benefits of these efforts will be achieved in the next three years, which will lead to improvement in margins. As per the analyst, 'this will help the company is cover up for the price erosion, volume growth and other factors.' The valuations are relatively reasonable, and the dividend yield is also good. Dr. Frost's leadership is encouraging, and he has been extremely active in exploring collaboration opportunities between the various companies which he controls. Cocrystal Discovery, a company where Teva and Opko (OPK) have a stake, recently merged with Biozone pharmaceuticals (BZNE) to take advantage of expected synergies. The real test for Teva is to move beyond the upper end of the range decisively.
The stock has corrected sharply over the last 7-8 weeks. It is nearly 20% below the 52 week high made in the middle of last month. The news that Lakewood Capital had initiated a short position in the company's shares led to some pressure. Lakewood earlier had a long position in the stock. The level of shorts were at extremely high levels on October 31 and hence the stock is vulnerable to volatile movements. In case of positive news, the squeeze can be very strong. The insider and institutional holding is extremely high, and investors like Soros Fund Management have a long position in the stock. However, despite the correction, it has done great in 2013 with more than 100% appreciation. Last couple of weeks have seen some recovery, but the volumes patterns are not so supportive. Dr. Frost has made some purchases recently which has supported the positive sentiments. Dr. Frost has been active with his other companies as well, and recently Biozone Pharmaceuticals (BZNE) was merged with Cocrystal Discovery where Opko and Teva (TEVA) have a stake. The strong performance of Opko is also mainly due to the support of Dr. Frost. The numerous acquisitions have also helped build positive sentiments about the prospects of the company. Many of Opko's investments may take time to yield tangible results, and hence improvement in the fundamentals may take a few years. The valuations are primarily based on promise, and the price to sales is still exceptionally high. An article on SA was positive on the future prospects of the company based on its candidates and catalysts in the near future. The analyst considered the recent fall as a buying opportunity, especially in view of purchases by Dr. Frost from the market. Dr. Frost's continued support is surely a factor, especially if one considers the possibility of a squeeze.
The latest lawsuit filed by Marathon's subsidiary Vantage Point includes Apple, LSI Corporation, MediaTek USA, Panasonic Corporation of North America and Sharp Electronics as defendants. Vantage Point has filed a total of 27 lawsuits, and this one is for "Method and Apparatus for Translating Virtual Addresses in a Data Processing System Having Multiple Instruction Pipelines and Separate Translation Look aside Buffers for each Pipeline." Marathon's subsidiary CyberFone recently got into a licensing and settlement with a consumer device and electronics company. The CyberFone portfolio has a good history of generating settlements. It has generated total $16 million in gross revenues in 22 months. The Q3'13 earnings of Marathon saw $710K in revenues, and the total for nine months of fiscal 2013 is $2.2 million. The net loss per share has come down significantly, and the cash position has improved. The net loss per share was $0.54 for the first nine months of 2013 compared $2.38 in the first nine months of 2012. In Q3'13, the net loss per share was 18 cents compared to 73 cents in Q3'12. The net cash used in Q3'13 was $253K compared to $460K in Q2'13. The company had $5.86 million cash as on September 30, 2013 compared to $2.35 million as on December 31, 2012. Several of the company's patent portfolios are generating revenues, and it is not totally dependent on the lawsuits. It is not profitable on a net basis yet, but it has started earning revenues. More settlements & licensing arrangements may come over the next few quarters. The consistency of the revenues will need to be seen over the next few quarters, and if the company can keep the costs under control, the financials will show a remarkable improvement. The company now owns around 100 patents in its seven portfolios, and has nearly 60 active lawsuits. The portfolio is diversified, which reduces the risk.
The movement in the stock has been steady, and a sharper movement can be expected only after the update on the trial is released early next month at the ASH conference. Many analysts have expressed positive sentiments about the potential of the technology though it is also accepted that the trials and approvals may take time. Investment in development stage companies give maximum returns if the timing is right, and the risks are obvious. Senesco's platform technology has potential uses in agriculture and cancer therapeutics. The trial results so far have confirmed that the main drug candidate SNS01T is useful in inhibiting tumor growth and even shrinking its size in animal models. If one considers the size of the market for cancer drugs, the commercial possibilities are tremendous. Factor 5A is known to regulate programmed cell death and cell survival by controlling pro and anti-apoptotic proteins. The initial use of this technology was to extend shelf life of food and increase crop yields. It was found that the inverse activation of Factor 5A, to program cell death, also had huge possibilities, like for the treatment of cancer. SNS01T, the company's main drug candidate, targets B-cell cancers by selectively inducing programmed cell death. Senesco's cancer treatment trials focus on multiple myeloma and other B-cell cancers. SNS01T has an orphan drug status granted by USFDA, the company holds numerous patents related to Factor 5A platform. Regarding the use in agricultural biotechnology and biofuels development, it has collaboration with companies like Bayer Crop Science and Monsanto. Apart from increasing seed yield and plant size, the technology can increase resistance to environmental stresses like frost, drought, heat, and soil salinity. The company is entitled to earn R&D milestones from its partners. The agricultural licensing revenues can provide some cash flow to the company faster, but it will remain dependent on external funding.
The sell off after the earnings has led to a significant correction from the highs. The volumes were also tremendous, and the recent recovery is relatively anemic. However, the fundamentals of the company have shown consistent improvement as far as the top and the bottom line are concerned. Investors have been rewarded with good returns over the last one year, backed by consecutive quarters of growth. Zacks has downgraded the stock form outperform to neutral, but the price target of $20.30 indicates a decent upside potential from current levels. Thomson Reuters/Verus had also downgraded the stock from buy to hold recently. The EPS for full fiscal 2013 is expected to be $1.09. The correction has improved the valuations and provided an opportunity to the long term investors. There are risks because the revenue stream is not so well diversified as the company has only two main properties. However, as mentioned by an analyst on Motley, the two properties are generating cash, and are located at places where the competition is not so fierce. The absolute valuations are good, as the stock is trading at 17 times trailing earnings and 14 times forward earnings. The price to sales ratio is 1.48 and the price to book is 1.77. The company will develop its Black Hawk property which will help in revenue growth over the long term. The debt remains at reasonable levels and the cash position is good. The debt was $56 million on Sep 30, while cash was around $17.5 million. The industry is capital intensive because of the investments required for acquisition and development of properties. Inorganic growth is important for gaining access to emerging growth segments. Companies like Caesars (CZR) and MGT Capital Investments (MGT) have recently acquired companies in the fast growing social casino segment. Monarch can be a good long term bet after the correction, though one needs to choose the entry point carefully.
The recent analyst opinion has been positive. The stock has performed well over the last one year, though it remains significantly below the highs made a few years ago. It has corrected over the last few weeks, but is still up by 60% during 2013. The performance in the second quarter was better than analyst estimates, and the company increased its EPS guidance for the full year. The non-GAAP net revenue came in at $1.04 billion, slightly above the guidance of $975 million, and the Non-GAAP diluted earnings per share came at 33 cents much above the guidance of 12 cents. The annual guidance for EPS was increased from $1.20 to $1.25 per share, Mobile and handheld non-GAAP digital net revenue increased by 19% to $105 million on a yoy basis in the second quarter of FY14. The performance so far has been good with the ttm non-GAAP digital revenues up 22% to $1.75 billion compared to last year. TheStreet has a hold rating for the stock because of recent performance of the stock, and the growth in earnings per share. The company faces competition from established players like Activision (ATVI), and Zynga (ZNGA). Entry of smaller players like MGT Capital Investments (MGT) indicates the future potential of the space. Electronic Arts is expected to deliver good performance going forward on the back of its franchise arrangements and success of its creations. A seekingalpha analyst had mentioned that the international FIFA revenue, Star Wars resurgence and expectations related to future success of Titanfall could lead to faster growth in revenues. If the company can keep the costs in control, the topline growth can translate into consistent improvement in margins. The valuations are not too high as it is trading at 15 times forward earnings and the PEG ratio is 1.20. The cash position remains good with $1.42 billion as on 30 September, and the debt was $570 million.
The stock has rewarded the investors over the last two years with a 87% rise. The recent upgrade by Wells Fargo has had a positive effect on the sentiments for the stock. The report by Wells Fargo expresses positive sentiments about the prospects of Penn and the industry environment. They recommend to buy the stock with a price target of $16-$18. This indicates a potential upside of around 10-23% from the current levels at the low and high end of the target range. The analyst consider the stock to be undervalued because of an overly pessimistic industry view, confusion over how to value PENN post the spin-off, and a misconception that the company's cash flows are now significantly more volatile than its peers. They believe that the current valuations overlook Penn's options to create value through unit growth, supported by its balance sheet and strong free cash flow. About the industry, 'the estimates and industry trends are expected to stabilize next year because of the limited supply growth until 2016, and well known risks in the Midwest'. The company is profitable on a net basis, which itself is a positive factor compared to many peers who are reporting losses continuously. The trailing P/E is around 12.95, and the price to sales ratio is 0.38. The stock is trading at half its book value. Leverage is high, but that is the case with most players. The entire industry is highly leveraged as it depends on capital investments for acquiring real estate etc. It also needs funds for acquisitions in emerging segments. Social casino has seen some activity with company's like Caesar (CZR) and MGT Capital Investments (MGT) making acquisition to gain access to this fast growing segment. So Penn appears to be relatively a good bet though one needs to keep the absolute valuations in mind.
The stock has recovered after the post-earnings fall. The volumes have not been great, but the important supports have held. The main reason for the drop was that the revenues came in below estimates. There was a modest 6% growth in revenues on a yoy basis, though there was a 5% drop sequentially. The EPS came in much better than estimates, even if one excludes the abnormal gains during the quarter. The net income increased by 138% on a yoy basis. However, an analyst on seekingalpha was particularly negative about the stock. He cited slow pace of growth and some data points which suggest 'diminishing perceived value' of IAC's offering. IAC is generating less revenue per eyeball, indicating less than optimal monetizing of the consumer base. This was attributed to the fact that the IAC's websites are not that suited for mobile viewing. Adjusting to the transition of increased usage of mobile devices is critical for most companies working in the space. IAC's dependence on Google is another factor to expect lower traffic in the future as Google updates its algorithm. The author also expects 2014 earnings estimates for Interactive to be lower. While it is true that IACI needs to do better on growth, one cannot underestimate the company or ignore its good performance over the years. Increased use of internet through mobile devices provides challenges, but can also be seen as a growth opportunity for the company to leverage. Companies usually look at new emerging growth segments to diversify revenue streams and bolster growth over the long term. Interactive invested in fantasy sports where Yahoo (YHOO), Comcast (CMCSA) and MGT Capital Investments (MGT) have put in their money. The drop in the stock price and increase in EPS has improved the valuations, but it is critical that the future quarters reflect management's efforts at achieving better operational metrics.
The court ruling has boosted the stock as it continues to make new 52 week highs. The uptrend seems to have gained momentum as the volumes are relatively high. The last few weeks have been particularly good. The Jury found that Zynga had not infringed on the patents of Personalized Media Communications in its game titles. This helped it avoid $25 million in royalties, and will deter others from filing suits. Despite the great run, the stock is still significantly lower compared to its peak in early 2012. However, the uptrend in the stock is not totally based on the fundamentals. The revenues have been falling over the last few quarters, and the improvement in bottomline (reduction in losses) is also not consistent. It is important to remember that, apart from hopes of improvement due to the new top management, nothing remarkably positive has happened fundamentally. However, the company did better than expectations in the last quarter, and was cash flow breakeven. Full year profitability on a net basis is far away, but the improvements are welcome. More such quarters are required to believe that the trend of improvement in fundamentals is in place. The competition is immense with existing players like Electronic Arts (EA) and Activision (ATVI), and new entrants like MGT Capital Investments (MGT) attempting to attract users through novel creations & strategies. However, Zynga is surely on an uptrend, and one can tag along with a stop loss. The new CEO has a successful track record in the industry, and he is expected to take the company to profitability. The social mobile games industry is expected to grow at a good pace, and the management needs to leverage that to its advantage. Most importantly, the costs have to be kept under control. The fact that it is a debt free company with good amount of cash does help matters.
The upcoming results will indicate how things are progressing as far as multiple myeloma is concerned. Positive news could take the stock higher. However, the potential applications of the technology in agricultural science also hold a lot of potential. That aspect does not find too much mention as the focus so far has primarily been on treatment of cancer. The encouraging results in pre-clinical and the clinical trials for cancer treatment so far have taken away the focus from the agricultural applications. The potential of agricultural applications of the technology is perhaps underrated, especially in light of the partnerships which the company has, and the patents which it owns. Senesco has a number of agreements with companies in the agricultural field. In November 2006, it had entered into a collaboration with Bayer Crop Science to use the technology on Brassica oilseeds to improve the yield of canola. Its agreement with Monsanto enabled to use Senesco's yield and stress technology on corn and soybeans. Other companies with which it has an arrangement include Cal/West Seeds, ArborGen and Rahan Meristem. In fact, the original discovery of eIF5A was in plants, and the human applications weretried because the genetic sequence of eIF5A (Factor 5A) is very close to that of a plant. The agricultural aspect has the potential to generate regular inflow for the company sooner compared to the cancer therapy applications. It is already contributing a bit. As mentioned in the recently filed 10Q for the period ending Sep 30, the company received a revenue of $100,000 which relates to a milestone payment in connection with an agricultural license agreement. However, the immediate trigger will be the trial results. The company will make the presentations to give an update on the progress at the American Society of Hematology Annual Meeting to be held early next month.
An article on seekingalpha has given a target of $29.50 for the stock which indicates a significant upside potential from current levels. The author considers the recent correction a buying opportunity for the investors. The earnings were below analyst estimates, but a major reason for that was provisioning / adjustment needed to set aside more money for income taxes. Before this provisioning, the adjusted earnings per share from continuing operations was 22% higher. This indicates better operational performance. The company has performed consistently over the years, and the revenues and net income have grown at a decent pace. The trailing P/E is around 17, and the forward P/E is below 13. This indicates expectations of modest growth in earnings over the next few years. However, the deal with Caesars Entertainment (CZR) to supply it with 7,000 video poker terminals is yet to have its full impact on the financials. The social casino / gaming space has huge potential, and Double Down is likely to continue its good performance. As per reports, the social casino segment is expected to grow at a good pace over the next few years. The space is attracting competition, with big and small players like Caesars (CZR) and MGT Capital Investments (MGT) acquiring companies to enter the space. MGT acquired Avcom a few days ago. Double Down's online gaming revenue increased to $61 million (up 74%), and the average number of daily users increased by 20% to more than 1.6 million. The social revenues continued the fast paced growth (up 151% over the past year). The legalization of online gambling in more and more states will increase the potential, especially as more users access the internet using mobile devices. The repurchase program may continue to support the price, though the company needs to keep the leverage in check.
The company continued to report increasing losses in the latest earnings. Even the revenues declined slightly to $2.18 billion, down 0.7 percent from the third quarter of 2012. The casino revenues declined by 7.1 percent to $1.466 billion. The net loss increased 50.6% on a yoy basis from $505 million in Q3'12 to $761.4 million in Q3'13. Interest expenses increased from $515 million in Q3'12 to $563 million in Q3'13 (up 9.2 percent). For the nine months of the fiscal, the interest payments increased to $1.67 billion compared to $1.57 billion in nine months of 2012. Even the operating loss nearly tripled from $216 million to $637 million on a yoy basis. The loss per share for Q3'13 was $6.03 compared to $4.03 in Q3'12. All these metrics indicate worsening financial position, especially due to consistently stagnant top-line, declining operating margins and increasing interest payments leading to ever increasing losses. The company also raised $200 million in a public equity offering, the largest equity issuance since its initial public offering to improve liquidity. The company has started generating revenue from its online poker venture launched a couple of months ago. Leverage and liquidity remain important concerns, though the company expects to generate $420 million in the fourth quarter when it closes on the sale of a golf course in Macau. Capital investments and acquisitions are required to leverage the growth in emerging segments. Caesars (CZR) had acquired Playtika and, more recently, MGT Capital Investments (MGT) has acquired Avcom in the social casino sector which holds a lot of potential. Investigations by IRS and the Treasury Department’s Financial Crimes Enforcement Network to investigate money-laundering charges at Caesars Palace dampen the sentiments. Positive news is urgently required.
The stock continues its resilience despite posting numbers below analyst estimates. The average price targets set by the analysts are around 20% higher than the current market price. JPMorgan Chase has a price target of $30, though Credit Suisse has $17. The average forecast of analysts is for an EPS of $1.05 for the current fiscal year. The stock has done great for investors with 86% appreciation on a one year basis and 46% appreciation in 2013. The company reported an adjusted earnings of 11 cents per share for Q3'13, missing the analysts’ consensus estimate of 32 cents per share by a big margin. The adjusted EPS in the same quarter a year ago was 30 cents, which again indicates a large decline. Long-term debt, including current portion, increased substantially to $4.49 billion from $1.44 billion in Q3'12, because of the Ameristar acquisition. This high level of leverage is a major problem for the company, and even other companies in the sector are facing this problem mainly due to the nature of the industry. Capital investments are high, and acquisitions are required to leverage the growth in emerging segments. Caesars (CZR), and, more recently, MGT Capital Investments (MGT) has acquired companies in the social casino sector which holds a lot of potential. Pinnacle's revenues increased substantially in Q3'13 to $418.90 million compared to revenue of $256 million in Q3'12. Consolidated Adjusted EBITDA increased by 57.5% to $102.6 million. This is because the results included 49 days of contributions from Ameristar. Combined Net Revenues and Combined Consolidated Adjusted EBITDA would have been $553.9 million and $140.5 million respectively, had the results of Ameristar been incorporated for the entire third quarter instead of the 49 days included in the GAAP results. The full impact of the acquisition will be visible in the current quarter earnings.
The earnings were below estimates as the company reported an EPS of ($0.07) compared to estimates of ($0.03). The stock has recovered from the correction, though the volumes have not been great. Revenue for the quarter, however, came in better at $2.5 billion (a 9.4% growth on a yoy basis) against the consensus estimate of $2.42 billion. Even the net loss declined significantly on a yoy basis and a sequential basis. EBITDA reported good growth and the margins increased mainly due to strength at MGM China and Las Vegas Strip properties. The management was pleased with the gains in the market share due to its programs & offerings and its focus on international marketing strategies. Most importantly, the management expects reduction in the cash interest expense by $220 million. It is also pursuing refinancing options to further reduce the interest burden. FBR Capital Markets initiated coverage on the stock recently with an Outperform rating and a price target of $25. The analysts stated that while there was disappointment around recent earnings, they see some positives. The strip EBITDA totaled just 60% of the peak which leaves scope for growth, and the company is positioned to benefit from the ongoing growth in Macau. In addition, the strip recovery, dividends from MGM China Holdings, and refinancing efforts should lead to better margins and improvements in the balance sheet. Further, MGM is in the going for licenses in Massachusetts and Maryland which may help it in future growth. Other players are also exploring emerging segments. Caesars (CZR), and more recently, MGT Capital Investments (MGT) has acquired companies in the social casino sector which holds a lot of potential. The improvements in performance of MGM are encouraging. However, a few more good quarters are required to confirm the positive trend in improvement of bottomline. The ttm loss is still huge and stands at $1.34 billion on a revenue of $9.23 billion.