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Insiders Roll the Dice on Regional Casino Company Rebound
By Michael Brush
Exclusively for InvestorIdeas.com
June 13, 2008
Like other consumer-facing stocks, casino shares have been crushed. But unlike retailers, casino companies haven’t seen much insider buying at all in the pullback.
So when it does happen, it stands out.
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That’s why investors took note when insiders made some big purchases at a regional casino company called Lakes Entertainment (LACO) again last week. Two insiders have purchased after a rough year which sent the stock down to around $5 recently, from $12.
Based in Minnetonka, MN, Lakes Entertainment manages and develops eight Indian-owned casino properties in partnership with five tribes in Michigan, California, and Oklahoma. It plans to develop its own casino resort in Vicksburg, MS. The company also owns 61% of WPT Enterprises (WPTE), which runs the World Poker Tour television series.
Insiders like M.I.T. card counters
Chief executive Lyle Berman purchased $874,000 worth of stock for around $5.50 on June 4. This came after a director named Morris Goldfarb bought $960,000 worth of stock back around the middle of May for about $4.80.
These two Lakes Entertainment insiders know how to play the stock market like a couple of brainy card counters from the movie “21” working the tables in Vegas.
* For example, I can buy into Berman’s sense of timing because last September he dumped $3.1 million worth of Lakes Entertainment stock at about $10 – just before the stock got cut in half. Now he is buying back.
* Both Berman and Goldfarb had commendable timing in getting out of Wilsons The Leather Experts (WLSN) back in 2002, when they each sold a lot of stock in the $10 to $14 range. The stock now sells for about 8 cents a share.
* Lakes Entertainment stock typically goes up 27% in the six months after Berman buys. It has gone up 10% after Goldfarb buys, on average, according to Thomson Financial
Not as scary as it looks
Lakes looks scary because it made a big bet on debt backed by student loans – a bet that’s turned sour. Now that demand for those kinds of loans has dried up, the company had to reclassify that debt as a long-term investment, instead of a short-term play. The company also says it may have to raise capital soon to help fund a casino resort project in Ohio.
But Lakes Entertainment might not be as scary as it appears, financially. The company points out it has $174 million in “cash value assets” including $119 million in notes receivable from Native American casino projects, $8 million in current assets, and $27 million in “auction rate securities” -- the ones backed by student loans. In contrast, it has $29 million in liabilities.
Insiders, with their recent buying, are telling us various expansion plans will work out – at least in the medium term. Morgan Joseph & Co. analyst Justin Sebastiano agrees. He recently started coverage on the stock with a “buy” rating and a $10 price target, citing potential cash flow from casino projects.
Highlights of casino projects
Here’s a brief overview of Lakes Entertainment projects.
The Four Winds Casino Resort managed for the Pokagon Band of the Potawatomi Indians. Lakes has a five-year contract to manage this casino resort in southwestern Michigan, about 75 miles east of Chicago. The resort opened last August. It has about 3,000 slot machines and 85 table games, as well as restaurants, bars and a hotel.
This casino resort is one of the top destinations in the Great Lakes region, says the company. So far this year its hotel has been at 97% occupancy. Promotions designed using data from customer loyalty programs “have significantly improved the level of play from our guests, increasing the win per guest statistics,” Berman said in the most recent conference call.
The Cimarron Casino managed for the Iowa Tribe of Oklahoma. This one is based in Perkins, OK. Revenue was up 26% in the first quarter, over the prior year.
The Red Hawk Casino managed for the Shingle Springs Tribe. Lakes has contracts to develop this casino, and then manage it for seven years. The site is about 30 miles east of Sacramento, CA. A nearby highway is being extended to the casino, which is due to open in late 2008. The casino will draw from a potential customer base of over four million people in a 75-mile radius of the casino.
The Jamul Casino to be managed for the Jamul Tribe. The site for this one is about 20 miles east of San Diego. Permits for road access to the casino site are in the works, but the process has been hung up.
The Iowa Casino resort to be managed with the Iowa Tribe of Oklahoma. This site is near Chandler, OK. The Bureau of Indian Affairs still needs to approve development plans. The company expects this casino to open in early 2010.
Lakes Entertainment also wants to develop its own casino in Vicksburg, MS. And it recently announced plans to partner with a group called MyOhioNow that wants to bring casinos to Ohio. A referendum vote this November could authorize a proposed casino in the state.
The bottom line: The casino business is tough right now. So tough, industry insiders aren’t very enthusiastic about buying their own stock. So the insider buying at Lakes Entertainment makes it stand out as one that could outperform when the economy rebounds.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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