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Twin River Stock Spirals Lower, But Analysts Stick by it, Press For Buybacks

Twin River Worldwide Holdings, Inc. (NYSE:TRWH) stock has tumbled more than 38 percent from the highs seen in April soon after its initial public offering (IPO), and that selling pressure has recently intensified. That has resulted in a month-to-date loss of nearly 29 percent. But some analysts remain cautiously confident in the Rhode Island casino operator.

The slots area at Twin River in Lincoln, R.I. The property is facing new competitive challenges. (Image: Providence Journal)

In a note out Tuesday, Stifel analysts Brad Boyer and Steven Wieczynski reiterated a “buy” rating on shares of Twin River, but they slashed their price target on the stock to $29 from $43.

“Call us crazy, but we are sticking with our Buy rating,” said the analysts.

TRWH stock was pummeled on Monday, shedding almost 12 percent after the company reported second-quarter earnings. While there were bullish comments on the recently acquired Dover Downs business, it’s clear Encore Boston Harbor is a major competitive concern for TRWH.

In July, the first full month of operations for Wynn’s Encore Boston Harbor, table and slot revenue at the TRWH’s namesake Twin River Casino in Lincoln, R.I. tumbled 34 percent and 17 percent, respectively, on a year-over-year basis, according to the company. Those declines were well-above previous guidance of a 10 percent drop in table revenue and a five percent retreat in slot turnover.

The Stifel analysts note that the Lincoln property historically sees revenue drops in the summer months, and that TRWH management guidance against the new competitive climate in New England could prove too cautious.

That said, given management’s revised expectations assume no abatement of the current trend, we actually believe the revised outlook could prove overly conservative, as Lincoln’s competitive advantages, namely its proximity to a significant portion of its player database, begin to factor in more prominently in the fall,” said Boyer and Wieczynski.

In addition to Rhode Island, TRWH operates gaming properties in Colorado, Delaware, and Mississippi, and announced the acquisition of another Mississippi venue and a Missouri casino last month. However, the Ocean State remains the company’s largest market.

Fighting Wanton Selling With Buybacks

While admitting they have no direct insight into the matter, Boyer and Wieczynski say that one of the issues currently confounding shares of Twin River is that “legacy” shareholders are departing the stock and seemingly don’t care about their sale price.

The Stifel analysts believe the company can combat that indiscriminate selling by buying back stock, something the operator announced it will do earlier this year. In June, TRWH pledged to spend $250 million on buybacks and dividends.

Boyer and Wieczynski estimate that even after taking into account $4 million spent on dividends and a recent $75 million tender offer for stock, TRWH could spend about $170 million repurchasing its own shares. The company would be getting a good deal if it started buying back equity today, relative to where the stock resided when the buyback announcement was made. Shares of TRWH traded over $30 in early June, but closed just over $21 today.

“In the end, the absence of meaningful share repurchase activity could compel us to revisit our core investment thesis on the shares, as such an outcome would lead us to question the motivation of TRWH’s board,” said the Stifel analysts.

M&A Strategy

Twin River has a history of successful acquisitions, including Dover Downs. While the company has been rumored to be a potential suitor for a Las Vegas Strip asset should one come up for sale, management quashed that notion.

On a call with analysts and investors on Monday, TRWH CEO George Papanier said Las Vegas “ranks low on our priority list,” and that Atlantic City would be “in that category also.” Papanier said the company is focused on regional markets, such as the Midwest and the South, where “there are some opportunities that are going to be coming out of the Eldorado/Caesar’s deal, and we’re going to be kicking a lot of tires.”

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