EUR 850.00 For Business Accounts Only

Morningstar | Admission Struggles Stifle International Speedway’s Earnings Growth; Shares Overvalued

With attendance headwinds limiting top-line growth, International Speedway is suffering from the consumer downshift to value-priced packages. Admission revenue fell 4% in the first quarter to $29.3 million and is trending down 5% for the second quarter. While NASCAR continues to shuffle races and update race rules to attract new consumers while keeping existing fans engaged, we think price sensitivity will prevail, making it difficult to increase admissions above the 0.5% average rate we have incorporated into our model over the next five years. International Speedway maintained its full-year outlook of $685 million-$705 million in revenue, an operating margin of 13.5%-16%, and EPS of $1.85-$2.15, which are all in line with our forecast of $694 million in revenue, a 15.5% operating margin, and $2.02 in EPS. We don’t plan any change to our $37 fair value estimate and view shares as overvalued.

We have yet to incorporate the nonbinding bid of $42 per share NASCAR offered for International Speedway in November 2018, given uncertainty about the timeline or the probability of such a transaction being consummated. With five months of evaluation underway and little information to sway the likelihood of completion, we plan to continue to wait for more information to ascertain the most probable outcome. Thus, our long-term forecast remains intact, calling for five-year revenue growth of 2.5%, average operating margin performance of nearly 17%, and EPS growth of 11%. Our overall profit growth is bound by the fact that International Speedway's product competes with other recreational activities to which consumers can allocate their dollars and there are no switching costs to do so, limiting its ability to raise prices materially and, in turn, leverage costs.