Gaylord Entertainment (GET), an operator of mega-hotels, has had a disastrous year, and its shares are trading at $9.05, down from an August 2007 high of $59.89. However, with an enviable franchise, Barron's Sandra Ward says Gaylord's cheap stock is ready for a big rebound.
Gaylord's stock is probably worth around $50/share, but a confluence of factors have sent investors running, including a heavy debt load, liquidity fears and concerns about how the slumping economy will impact Gaylord's main hotel and convention business, which accounts for 80% of the company's roughly $900M in revenues. Investors are also worried about a shareholder-rights plan adopted this year which limits any investor's stake to 15%, a poison-pill provision in response to aggressive purchases of Gaylord's shares by outsiders as the stock price fell continually lower.
Despite short-term pressures, Gaylord has much to offer. It has an enviable hotel franchise which boasts powerful brand-name recognition among meeting and convention planners. Its convention hotels are located in key destinations around the U.S. Meetings are booked years in advance and cancellations still provide the company with fees to offset the decline in revenue.
CEO Colin Reed projects same-store cash flow for 2009 to be around flat with 2008 at $185M to $197M, even though he expects the economy will be "tough for the next six to nine months." Reed expects 2009 total cash flow of $214M-$240M.
Gaylord's shares look undervalued, trading at less than eight times 2010 cash flow, compared with the stock's normal 12-13 times. The company's $1.2B in debt looks manageable, with the earliest maturity date in July 2012 and 'wiggle room' in its covenants. Moreover, Gaylord is using free cash to pay off debt and reduce leverage. Amit Kapoor, a research analyst at Gabelli & Co., values the company at $48/share.
- Gaylord Entertainment Company (GET): Q3 EPS of -$0.16 misses by $0.11. Revenue of $226.7M (+35.8%) vs. $240.25M. (PR)
- In December, Gaylord rejected a request from TRT Holdings, owner of Omni Hotels, to increase its ownership stake to 30% from 15% via open market purchases and to replace three board members with TRT designees. Gaylord said the proposal was "not in the best interests of all Gaylord’s shareholders."
- Gaylord plans to push forward with its $400M expansion of its Opryland property in Nashville, and has no plans for significant layoffs. Asked about the company's depressed prices, CEO Reed said "do we like the stock price to be this low? No. But we can't do anything about it. We're not the lone wolf here."