Today I take a break from my series of articles on the DOW 30 stocks to cover the business of racing. I love racing. So imagine my joy when I learned that track operator Speedway Motorsports (TRK) pays a decent dividend yield of 3.7%. While the action on the track has been thrilling the last few years, the action in the stands has been disappointing. High unemployment, high gasoline prices, and a Keynesian induced economic bust has hurt TRK badly. I’ve been watching most NASCAR races on TV since 1997 and I’ve never seen the stands more empty than since the financial crisis of 2008. This New York Times blog summed it up in late 2008. Nothing has changed in the stands since then.
http://wheels.blogs.nytimes.com/2008/10/17/perfect-storm-brewing-for-nascar/
Speedway Motorsports Inc. (TRK)
Price: $16.23
Shares: 41.46 million
Market capitalization: $672.89 million
What does the company do: Speedway Motor Sports owns and operates Atlanta Motor Speedway, Bristol Motor Speedway, Infineon Raceway, Las Vegas Motor Speedway, Lowe’s Motor Speedway, and Texas Motor Speedway. The company derives a majority of its revenue from activities related to NASCAR sponsored events such as ticket sales, broadcast licensing, and sales commissions.
Bonds: $1.3 billion outstanding
Times interest earned: Speedway Motorsports net income did not cover its interest expenses in 2011. Their bonds are a threat to the dividend. TRK lost $6.444 million dollars in 2011 and they had interest expenses of $42.414 million dollars. I like it when company earn at least five times their interest expenses. TRK is deficient in this regard and this will not change until the US economy improves. That isn’t going to happen anytime soon, so this is a real threat to the dividend.
Preferred stock: none.
DIVIDEND RECORD: TRK started paying dividends in 2002. They paid around a $0.31 dividend once a year from 2002 until 2008. Those dividends yielded about 1%-2%. Then in late 2008 they began paying a quarterly dividend of $0.34. That dividend only lasted one quarter because the Panic of 2008 occurred at that time. In 1Q 2009 they cut their dividend significantly to $0.09 per share quarterly. Since then they have grown the dividend to $0.15 per quarter, but their payout ratio keeps rising. The grandstands are just as empty as they were following the financial crisis. They haven’t shown themselves to be dedicated dividend growers.
Dividend: $0.15 quarterly
Dividend yield: 3.7% ($0.60 annual dividend / $16.23 share price)
Dividend payout: n/a using the 2011 EPS of ($0.16) per share –OR- 48% using the average adjusted earning power of $1.26 per share.
EARNING POWER: $1.26 with 41.46 million shares
(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)
EPS | Net income | Shares | Adjusted EPS | |
2005 | $2.45 | $108 M | 44 M | $2.60 |
2006 | $2.53 | $111 M | 44 M | $2.68 |
2007 | $0.87 | $38.4 M | 43.9 M | $0.93 |
2008 | $1.84 | $80 M | 43.4 M | $1.93 |
2009 | ($0.24) | ($10.3) M | 42.7 M | ($0.25) |
2010 | $1.06 | $44.5 M | 41.9 M | $1.07 |
2011 | ($0.16) | ($6.4) M | 41.5 M | ($0.16) |
Seven year average adjusted earnings per share is $1.26
Consider contrarian buying below $10.08 (8 times average adjusted EPS)
Consider value buying below $15.12 (12 times average adjusted EPS)
Speedway Motorsports Inc. (TRK) is currently trading at 12.9 times average adjusted EPS. This is stock is priced for investment.
Consider speculative selling above $25.20 (20 times average adjusted EPS)
BALANCE SHEET – Speedway Motorsports has a average balance sheet. The steady decline in assets is not comforting. Their price to book value ratio looks good until you compare it to the price to tangible book value ratio. Their current ratios and quick ratios are sort of weak. I do like their large percentage of net property and equipment. Most of their assets are bound up in their big racetracks. The working capital trend is down. That is expected given the sparse attendance at the races.
Book value per share: $20.29 ($841.180 M total shareholder equity / 41.46 M shares)
Price to book value ratio: 0.80 (under 1.0 is good)
Tangible book value per share: $7.42 (total shareholder equity less goodwill of $138.717 M and intangibles of $394.96 M / 41.46 M shares)
Price to tangible book value: 2.19 (near 1.0 is good)
Current ratio: 1.17 latest quarter (over 2.0 is good)
Quick ratio: 0.98 latest quarter (over 1.0 is good)
Debt to equity ratio: 0.66 (lower is better)
Percentage of total assets in plant, property, and equipment: 60.46% (the higher the better) Intangibles made up 27.51% of total assets, current assets were 8.29%, and other long term assets comprised 1.82%.
Working capital trend: down slightly as expected.
CONCLUSION – I think it is great that Speedway Motorsports is paying a dividend yielding 3.7%, but the dividend is not safe given the US economic conditions and the company’s present debt load. This company will rebound when the US economy rebounds. However, a recovery is going to take many years due to the depression that Keynesian central bankers have put us in. The middle class fans are the ones that attend races and they’ve been hit hard by unemployment and rising prices of consumer products cause by Fed money printing going back to 2002-2003. The bust arrived in 2008 and racetrack operators have suffered because of it. I think that this stock will go lower due to the continuing depression/recession. Look to pick it up at or below 2009 lows of around $10.00 per share. The stock will be yielding a high dividend of 6% at that price and will only be trading at a slight premium to tangible book value. Do that any you’ll get the Lucky Dog pass to get out from being a lap down in the race for total return.
DISCLOSURE – I don’t own Speedway Motorsports Inc. (TRK).
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