Raising estimates but leaving price target intact is stinky analysis. What happens when they have to raise estimates again?
Yesterday, BMO raised 2011 and 2012 estimates to $1.65 and $2.09, respectively. We have two issues with this. First, the analyst left his price target at $21 and rating at Neutral despite the higher estimates. With ASCA almost at $23, wouldn't that make the stock a Sell and not a Neutral? He's been raising estimates fairly consistently on the name but that Neutral rating has been sticky. Second, his estimates are still way too low. We think $2 for 2011 is likely. The only way ASCA does $1.65 is if the economy tanks. If that's what he is projecting, he should have a Sell on the entire gaming sector which has become synonymous with the term cyclical.
ASCA is not a Wall Street favorite. Maybe it's because they aren't in Asia. Maybe it's because they aren't spending a ton of money to drive growth. Maybe it's just not an exciting story. So what? These guys are great operators who are focused on ROI. Free cash flow is growing faster than EBITDA and it won't be long before the company returns more capital to shareholders above the current 2% dividend yield. ASCA is one of only a few gaming companies that actually pays a dividend.
At some point, these analysts will have to raise ratings and price targets as estimates continue to go higher.