Investors put money on the trifecta

If stock in Canterbury Park Holding Corp. were a racehorse, it would be a long shot.

But as gamblers will attest, a long shot can bring rich rewards to those brave enough to bet against the crowd.

Casino stocks have been on a losing streak since last summer, as soaring bills for housing, gas and food cut into the dollars people bet at casinos and racetracks. Wagers at the Kentucky Derby fell 3.2 percent this year, despite a near-record crowd, and Canterbury's stock earlier this month plunged to a 52-week low of $8.20 a share after it reported a 44 percent drop in first-quarter profits.

Yet gambling stocks are famously recession-proof, and the Shakopee-based company has a few trump cards up its sleeve. One is the estimated $145 billion in tax rebate checks that began arriving in mailboxes earlier this month, which gaming analysts say could become a small jackpot for racetracks and casinos.

The company could also benefit from the media hype surrounding Big Brown, a 3-year-old colt that won the Kentucky Derby and Preakness and is in position to be the first horse in 30 years to win the Triple Crown. "If there's front-page news about a horse, that's advertising for every racetrack in the country," said Clinton Morrison, director of equity research at Feltl & Co. in Minneapolis and the lone analyst who covers Canterbury. The final leg of the Triple Crown, the Belmont Stakes, will be run a week from Saturday.

Long term, its trump card could be 100 acres of undeveloped land that Canterbury Park owns in Shakopee, about 25 miles southwest of Minneapolis. The company plans to develop the land into an open-air shopping and entertainment venue by 2011. It expects to break ground next year, though just selling the land to a developer is also an option. That could generate more than $10 million in cash, or more than $2 per share, analysts said.

And while Canterbury's market value is thinner than a jockey's whip, its cheap price has begun to make it look tantalizing to bargain hunters. That includes several company insiders, including CEO Randy Sampson, who since April has snatched up 4,000 shares of the stock in the open market at prices ranging from $8.58 to $9.54 a share. All told, insiders, including company directors and senior executives, own 50 percent of the stock, up from 46 percent a year ago.

And a large hedge fund, Whitebox Advisors LLC of Minneapolis, disclosed in March that it more than doubled its stake in Canterbury to 97,546 shares. The hedge fund now owns 2.4 percent of the company's stock.

Recently, the stock has been trading at just 1.25 times its book value, which means investors are pricing Canterbury at only slightly more than the value of its assets minus its liabilities. "With just a little bit of positive news, this stock could really take off," Morrison said.

One thing that has investors nervous is a new harness-racing track that opened last month in Columbus Township, in Anoka County. The new track has many of the same features as Canterbury, including live racing and simulcasts; a new card room will open July 1 with 50 gambling tables.

The new competition comes at an inopportune time. The poker rage of the past five years has begun to subside. And a statewide smoking ban that went into effect last October has pushed many of Canterbury's customers into the Indian casinos, which are exempt from the ban. Canterbury's revenue in the first quarter ended March 31 fell 11.1 percent.

"I've watched casino stocks hit 52-week lows this year and thought, '... this can't go any lower,' but they have," said Steven Wieczynski, a gaming analyst with Stifel Nicolaus. "For Canterbury, I don't know what's going to grow their business. And with a large competitor coming next month, that would make me nervous."

Yet other analysts believe the economic stimulus checks could be a short-term boon for smaller gaming venues, like Canterbury, that appeal to a middle-income gambler. The checks are large enough to be wagered at a local racetrack, but too small to fund a gambling jaunt to Vegas, said James Hardiman, an analyst at FTN Midwest Securities Corp.

"A lot of the people who gamble in Vegas don't get rebates," because their incomes exceed the government's cutoff, Hardiman said. "But the good news for regional operators like Canterbury is that many of the people who go there will view their checks as free money they can gamble."

Chris Serres • 612-673-4308