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Still Hitting the Ball Out of the Park
03/28/2007 12:00 am EST
Recently, shares of Centerplate (Amex: CVP) dropped 3 1/2 points (20%) on heavy volume in response to a Sports Business Journal article that says the New York Yankees may operate the concessions in the new stadium they're opening for the 2009 season.
There is no question that the Yankees compose 10% of Centerplate's business and that investors were spooked by this potential contract loss--even if that potential loss is a full two years away.
You'd think it would dawn on investors that by then, Centerplate could easily replace the Yankees' 10% revenues with new business.
Nevertheless, due to the sell-off, the company issued a statement, which said in part:
"The company believes that [the unusual market activity of its income deposit securities] may have been influenced by a recent article in Sports Business Journal, [which quoted] unnamed ‘industry sources' saying that the Yankees plan to 'sever ties' with Centerplate and to take a more active role in operating concessions at the new stadium.”
"'Centerplate has strong momentum across its business,' noted CEO Janet L. Steinmayer. She added, ‘Of course, there is always a risk that any contract in our portfolio will not be extended beyond its scheduled expiration. However, we are pursuing a broad range of opportunities to partner with clients in increasing sales and continuing to grow our business in new ways.'"
My take on this is that we have been presented with an excellent buying opportunity in Centerplate at current price levels, thanks to this selling because of a rumor. The fact is that Centerplate is in a business where loss of contracts is a part of normal business operations, so CVP could well lose the Yankee contract. But acquiring new contracts is just as common, and Centerplate is the 800-pound gorilla in this business. The shares throw off a current yield of 11%.
Some basic facts:
The long-term fundamentals of Centerplate's business are solid.
- The population in the US is growing, meaning more sporting event tickets and entertainment tickets are being sold at a growing number of venues throughout the country.
- The seasons for major sports last longer, so CVP has more events to work.
- The various leagues are expanding, so the potential for new stadiums offers equal potential for new long-term concession contracts.
These positive points still make me a big fan of Centerplate's business. Use the weakness in shares of CVP to initiate a position (if you haven't established one) or add to your position if you haven't completed your 3% purchase. (CVP changed hands at around 15.89 Wednesday morning, up more than 20% from its recent low—Editor.) We’ve been given a great short-term entry point in an excellent long-term business.
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