Shares of Eldorado Resorts surged to record highs on Friday, after the company reported third quarter earnings buoyed by the speedy incorporation of its newly acquired Isle of Capri properties into its portfolio.
In its first full quarter since closing on a deal to purchase Isle in May 2017, Eldorado grew adjusted EBITDA by 16 percent to $112.1 million over the prior-year quarter, despite a slight dip in overall revenues to $444.9 million.
12 of Eldorado’s 19 properties grew adjusted EBITDA during the quarter, and property level EBITDA grew 11.7 percent to $118 million on top of a 300 basis point margin improvement, reflecting the speed and efficiency at which the company has been able to onboard its new assets.
After closing at $25.65 on Thursday, Eldorado shares were trading as high as $28 on Friday afternoon.
“We’ve demonstrated terrific execution on our integration plan, and achieved the anticipated synergies and… some additional ones,” Gary Carano, chief executive officer of Eldorado Resorts, said on a conference call with investors.
“Across our 19 properties, we are focused on generating profitable growth as we bring together the best practices from the Eldorado and Isle team,” Carano said.
Operating income checked in at $78.9 million, while diluted earnings per share was $0.38.
But the EBITDA margin expansion did not just come solely from the newly-acquired Isle properties.
“While some of this is attributable to the $35 million in annualized synergies already achieved since closing ISLE on May 1, big beats also came at legacy Eldorado properties,” said Chad Beynon of Macquarie Research.
Despite, the success of the quarter, Carano emphasized that there remains plenty of room for further EBITDA growth in the future as the new properties are onboarded.
“We’ve [had] tremendous success in growing our operating margin to date, but we also believe we still have a lot of runway opportunity ahead of us,” he said.
John DeCree, an analyst with Union Gaming, agreed with that assessment.
“Implemented transaction cost synergies, coupled with continuous improvement on reducing unprofitable marketing spend, positions the company for at least three more quarters of double-digit pro forma EBITDA growth,” he wrote in a note to clients.
Strong performance in Eldorado’s home base of Reno – where it owns three properties – also contributed to the strong quarter and is a focal point for capital investment moving ahead.
“Our Reno investment initiative to create an integrated resort experience across the three properties was done against the backdrop of what is the remarkable turnaround in Reno economy and an increasingly positive longer term outlook,” said Anthony Carano, chief operating officer.
Analysts see Eldorado’s exposure to Reno – as well as other regional markets like Black Hawk, Colorado and Waterloo, Iowa – as a strong foundation.
“While a large part of the ERI story is margin improvement, Reno does provide a compelling growth outlook as well,” said DeCree. “We believe there is multi-year runway for the Reno assets, stemming from both capital improvements and continued economic growth in northern California and Nevada.”
