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By MONEY MORNING REPORTS Money Morning • September 21, 2018
The company that popped up on our radar is Speedway Motorsports Inc.(NYSE: TRK).
Speedway Motorsports may not be a household name, but you've almost certainly heard of the venues it owns. Millions of people flock to its properties each year.
Speedway Motorsports owns eight of the premier tracks on the NASCAR circuit, including Charlotte Motor Speedway and the famed Bristol Motor Speedway.
They hold 24 sanctioned races a year at those locations, plus crowd-pleasing qualifying races, the Richard Petty Driving Experience, and countless concerts.
The locations also offer souvenir merchandising, have a race-related radio networks, and make their small-scale modified racecars. Stock car racing is their primary business.
Listen to the talking heads, and they'll tell you that an ongoing slowdown in NASCAR would be a disaster for their balance sheet.
But when you check the engine of this company, you'll find something far more interesting: a "buying" opportunity…
Why Speedway Motors Just Hit Our "Buy Zone"
It's true, fewer people are tuning in to watch NASCAR in 2018. Television ratings for the first 16 events (the Fox portion of the season) were down approximately 20%, according to ESPN.
But Speedway is still making a killing off of its TV contract.
The current TV contract between NASCAR and a combination of Fox Sports and NBC Sports lasts until 2024. This contract provides more than $200 million a year to Speedway Motorsports.
You see, the sport maintains a reliable, hardcore fan base that won't disappear any time soon.
Dedicated race fans plan their vacations around the NASCAR schedule every year. They spend hundreds if not thousands of dollars at the races on tickets, souvenirs, food, and drinks.
The company would turn a profit if it just collected the TV money and never sold a ticket.
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However, they do sell tickets – about $86 million worth in 2017 – to millions of racing fans. These fans then spend millions on food, sodas, beer, collectibles, and other merchandise, and some piece of every dollar falls into the pockets of Speedway shareholders.
As a result, the company generates a lot of free cash flow every year.
In 2017, Speedway produced $62 million of free cash flow.
While it has been paying down short-term debt, it has also been stockpiling cash and has more than $80 million on the books.
CFO William Brooks talked about the cash stockpile on the last conference call, and he had nothing but good news for shareholders.
"The Board has not made a definitive decision as to whether we would enhance capital projects, accumulate a little bit more cash, have more repurchases, or strengthen our dividend. That is something that will be on the agenda in the first part of 2019."
Speedway has also added events besides NASCAR races to their venues to boost cash flows further…
How Speedway Could Provide a Triple-Digit Return
Speedway is closely tied with NASCAR, but its moneymaking potential goes beyond stock car racing.
It owns 8,159 acres of land near major cities including Chicago, Atlanta, San Francisco, and Las Vegas that is valued at around $88,250 an acre if you assume no value for the buildings and facilities on the sites.
Speedway also hosts rock concerts, music festivals, auto shows, and other activities to add revenue. Its tracks have hosted races buy other organizations including the Indy Car Series and the National Hot Rod Association.
It even hosted a college football game between Tennessee and Virginia Tech in 2016 at the Bristol Motor Speedway that had the highest attendance of any college game.
But even as NASCAR is looking at a down year, there are rumblings of a major turnaround on the horizon, which could be very lucrative for Speedway…
The France Family, which has controlled NASCAR since the very beginning, is considering a sale of the racing series.
That could be good news.
Bill France Sr. was a genius of the racing and business world, and his son, Bill Jr., brought the sport into the big time during his tenure at the helm. Grandsons Brian and Bill have not done as well, and NASCAR viewership has declined on their watch.
A sale to outside interest with more of a flair for marketing motorsports, events, and the drivers could be a boost for the company.
Finally, do not overlook the possibility of the Smith family merely selling Speedway Motorsports. Chair O. Burton Smith (who is 91 years old) and his family own more than 70% of the stock, so they can do pretty much whatever they want to do with the company.
Since they own most of the stock and have the most to gain, one would assume the Smith Family would seek a hefty premium to the current price.
We've already doubled our money on a similar acquisition this year, with Dover Downs netting shareholders triple-digit returns.
The consistent free cash flow and the pile of cash could be very attractive to a private equity buyer or entertainment company.
NASCAR may not be as big as it once was, but it's still funneling cash into Speedway.
In Speedway Motorsports, we have a company that generates substantial free cash flows year in and year out.
The stock pays a dividend of $0.60 (3.38% yield), so we are getting paid handsomely while we wait for the full value of the company to be realized.
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