Summary
International Speedway Corp. (ISCA) is a very strong intermediate-term cyclical recovery play with potential 12-24 month price upside of 90% from 8/13/2009 levels. This oligopoly leader, with very manageable debt levels, a wide competitive moat, and a fan base highly responsive to brand advertising is poised to see a sharp recovery in earnings as consumer confidence is slowly restored and its loyal (sometimes fanatical) fan base returns to the race tracks.
Closing price as of 08/13/2009: $27.88
12-24 month Target Price: $53
Business Description
International Speedway Corp. is the leading promoter of NASCAR motorsports events in the United States. The company owns and/or operates 13 NASCAR race tracks including the widely known Talladega Superspeedway and Daytona International Speedway.
By hosting over 100 NASCAR racing events a year, the company generates revenue from event ticket sales and advertising sponsorships (30% of FY08 Revenue), TV and radio broadcasting rights to the races (60%), merchandise, food, & beverage sales (10%).
Over the last 10 years, NASCAR racing has grown to become the second most popular sports related activity behind NFL football. NASCAR fans are widely recognized as being among the most brand loyal of all sports fans, which allow ISCA to attract a long list of advertising sponsors.
Investment Thesis
ISCA has been beaten down given the severe impact the recession has had on ticket sales and overall top-line growth. Indeed, most sell-side analysts have a “Hold” rating on the stock. They are justifiably spooked by the impact of lower consumer spending on NASCAR. Given that ISCA’s expenses are mainly fixed in nature, any changes in revenue flows almost completely to the bottom line.
Thus, fiscal 2Q09 (ending May 31st) saw operating earnings decline 33% (excluding one-time charges) to $0.35/share compared to $0.52/share profit in 2Q08. This
