Trump Entertainment: Worth the Short Term Gamble

Looking at the community sentiment of Yahoo Finance, I find Trump Entertainment Resorts Inc. (TRMP) on the “Bullish” section of the list. This intrigued me, similar to some of the excitement surrounding a craps game offered in the casinos…

After doing some of my homework, it appears that TRMP is worth a short-term bet, if your portfolio can handle the volatility that comes with it...

Summary:

- Cheap but risky valuation

- Financial Fundamentals will not provide you much security

- Larger short interest in the wake of sale rumors

- Morgan Stanley providing some institutional support

Trump Entertainment Resorts, Inc. (TRMP) engages in the ownership and operation of casino hotel properties in the United States. It offers gaming, casino resort, and entertainment services. As of December 31, 2006, the company operated three casino hotel properties comprising Trump TajMahal Casino Resort, Trump Plaza Hotel and Casino, and Trump Marina Hotel Casino in Atlantic City, New Jersey.

Revenues declined from $1.4 Billion in 1997 to $1.0 Billion in 2006, a –3.4% annual growth rate over the 9 year period. Declining slot revenue for slot parlors in Pennsylvania and New York are contributing to the short-term sales decline. TRMP is currently trading at 0.3x Price/Sales multiple compared to an industry average of 3.5x.

During the last 9 years, TRMP has always reported a net income loss, not including any extraordinary or discontinued operation items. Although, TRMP has provided positive operating income in all of the 9 years, a metric that provides me some comfort of the firm operating in a leveraged environment. With the latest debt balance at $1.57 Billion (as of Q2 07), there will always be that liquidity question….

Here are some metrics from the industry average, from the Morningstar website:

• Price to Sales: 3.5x
• Price to Book: 4.1x
• Price to Cash Flow: 17.4

Here are the market cap valuations for TRMP if it were to trade, or be sold, at half those levels:

• P/S: $1.6 Billion representing a 533% gain
• P/B: $0.7 Billion, a 177% gain
• P/CF: $0.6 Billion, a 121% gain

With the short interest at 6.9 million shares, Morgan Stanley owning 5.9 million shares, and a “sale of the company” rumor…..TRMP will provide your portfolio with alpha with a little bit of a wild ride….

Author Disclosure: I do not currently own shares of TRMP.

Sources:

Company website

Yahoo Finance

SEC Online

Morningstar.com