NASCAR: Revved Up for Gains

04/01/2005 12:00 am EST

Focus:

Stephen Biggar

Director, Product Strategy, Argus Research Corporation

The Outlook, from Standard & Poor's, has chosen International Speedway as its latest "Stock of the Week." Here, Stephen Biggar explans their optimism for this leading player in NASCAR racing, and shows why the stock could be revved up for long-term gains. 

"The exploding popularity of NASCAR racing has S&P pumped on the potential of International Speedway (ISCA NASDAQ), which carries our highest investment recommendation of 5 STARS. This strong buy rating is based on ISCA's financial strength and flexibility, its dominant position within NASCAR, and the continuing growth in NASCAR's popularity. We believe these factors will enable ISCA to generate free cash-flow growth in excess of 20% annually over the next 10 years and to provide shareholders with superior returns.

"International Speedway operates 11 racetracks nationwide and promotes in excess of 100 races annually. The rise in NASCAR's popularity is evident as Nextel, the current sponsor of the championship cup, paid $700 million over 10 years for sponsorship rights in 2003, compared with the $200 million over five years paid by the previous sponsor. According to a recent Gallup poll, 39% of men and 22% of women consider themselves auto-racing fans. NASCAR has been the fastest growing sport over the past decade and that its ratings now exceed those of the NBA and Major League Baseball.

"We believe that ISCA has developed significant barriers to prevent competitors from usurping its role as the dominant NASCAR promoter. Both NASCAR and ISCA were originally founded by Bill France Sr., and are still controlled by the France Family Group via its 39% stake of outstanding shares. We believe this entrenchment with NASCAR provides ISCA with an ‘economic moat’ that enables it to earn superior returns. In addition, ISCA owns many of the most popular racetracks in the industry, further protecting its dominance, in our view.

"In the longer term, we're encouraged by ISCA's plans to expand into areas that are currently underserved by NASCAR. Late in 2004, ISCA purchased 677 acres for approximately $110 million on Staten Island in New York City, on which it expects to build a three-quarter-mile racetrack, with 80,000 grandstand seats and 64 luxury boxes by 2010 at a cost of approximately $600 million. It's also exploring potential locations in the Pacific Northwest. We believe these areas are now underserved by auto racing and are likely to be very profitable markets when the expansion is complete.

"The shares are attractive for several reasons. We think the firm's strong competitive position within auto racing, particularly its close relationship with NASCAR, will provide it with advantages that enable it to generate superior earnings. We also believe that NASCAR, in particular, and auto racing in general, will continue its ascension in the American sports universe, creating meaningful growth for the industry. Finally, we view the shares as having a good balance of risk and reward."

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