Shares of International Speedway Corporation (ISCA) fell 10% on Thursday after releasing disappointing fiscal third quarter earnings. Revenue fell 23 percent year-over-year, and the company swung to a small net loss for the quarter.
Much of the drop came from scheduling changes, with races that had been held in the third quarter of fiscal 2011 moved to the second quarter of FY12. The company noted in its release that on a comparable basis, revenue was down only 3 percent for the quarter. Still, the sharp drop in net income surprised analysts and the company itself, which lowered its full-year guidance from a range of $1.50-$1.60 to "below $1.50" per share.
There was a little bit of payback in ISCA's fall; as I noted in July, the stock jumped after Q2 earnings that were not nearly as positive as they seemed at first glance. Indeed, the same scheduling changes that drove Q3 down gave a boost to Q2 when compared to the year-prior period.
At the end of the day, ISCA still looks overvalued. Given current guidance, the company's P/E will be at least 17. There will be some earnings growth in FY13 from the company's investment in the Hollywood Casino in Kansas, but the legacy racetrack business seems unlikely to show much progress in the future. NASCAR attendance is falling sharply, and TV ratings are down as well after stemming a four-year slide in 2011. The current NASCAR TV rights deal is worth a total of $4.5 billion, and expires in 2014, with tracks getting 65 percent of the revenue, according to The Sporting News. President John Saunders said on the Q3 conference call that the company was "optimistic" about the next deal, noting that Major League Baseball's new deal saw its rights fees go up 50 percent. But the MLB deal includes expanded TV schedules; unless NASCAR plans on racing twice a week, they will not be able to make a similar offer to networks.
ISC noted several initiatives to boost attendance and ratings, noting NASCAR's five-year plan, which includes targeting younger viewers through social media and enhancing the live experience. But, as the company noted on the call, potential improvements at Daytona -- the jewel of the company's track portfolio -- would, by themselves, raise the company's annual spending on capital expenditures.
In short, ISC is a company in a stagnating market that needs to execute a turnaround -- and will have to spend to do so. Given that, it's hard to see why the stock is valued at 17-20x 2012 earnings. New income from Hollywood Casino will help next year, and renewal of the TV deal in 2013 will certainly move the stock one way or the other. Until then, it's hard to see any catalyst for ISCA stock. With so many challenges, and growth likely to be limited, ISCA seems likely to fall, perhaps closer to its book value of about $20 per share. It's certainly difficult to see any reason for share price appreciation in the near future.