1060 Capital Feasts on Gaming Stocks, Including Eldorado Resorts, Churchill Downs

Posted on: September 7, 2019, 01:00h. 

Last updated on: September 7, 2019, 10:45h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

1060 Capital Management, a Chicago-based hedge fund, sure likes gaming stocks. Of the firm’s top six equity positions at the end of the second quarter, five were gaming companies, according to a 13F filing with the Securities and Exchange Commission (SEC).

Churchill Downs is one of the favorites of a hedge fund that loves gaming stocks. (Image: Louisville Courier Journal)

Founded in 2013 by Brian Gustavson and Andrew Haley, 1060 Capital had $327.11 million in assets under management as of the end of the first quarter. It also had equity stakes totaling $76.51 million at the end of the June quarter, the most recent periods for which those figures are available.

1060 Capital uses fundamental analysis to identify catalysts that we anticipate will cause markets to reassess a company’s value within our consumer and industrial universe,” according to the hedge fund. “Common catalysts include competitive threats, better or worse than expected earnings, balance sheet actions, and pricing actions.”

Translation: the firm looks for stocks with either imminent catalysts that could move the shares, or names that may be mis-priced, misunderstood, or under-appreciated by the broader investment community.

Consumer Cyclical Focus

As noted, one of 1060 Capital’s preferred sectors is consumer discretionary. That’s where gaming companies reside, and at the end of the April through June time frame, the group accounted for over 85 percent of the hedge fund’s equity positions, by far the highest percentage in at least three years.

At the end of June, 1060 Capital owned more than 228,000 shares in Eldorado Resorts, Inc. (NASDAQ:ERI), making that position the fund’s largest at 13.74 percent of the portfolio. During the second quarter, the hedge fund boosted its stake in the regional gaming company by 16 percent.

Eldorado is the midst of acquiring Caesars Entertainment Corp.(NASDAQ:CZR) for $17.3 billion, a deal that will create the largest domestic gaming company by number of venues. Data from the SEC indicate Caesars was previously a 1060 Capital position, and that the fund liquidated its stake in that company during the second quarter.

Speaking of investments that 1060 Capital is reducing, the fund pared some of its exposure to Churchill Downs Inc. (NASDAQ:CHDN), one of this year’s best-performing gaming stocks, in the second quarter. But the operator of the eponymous race track remains the third-largest equity position in the fund’s portfolio, accounting for 11.47 percent.

Betting On Sports Betting

“We typically favor investment ideas that have multiple ways to win and where our view runs against the consensus,” according to 1060 Capital.

The firm’s efforts to identify catalyst-rich, out-of-favor securities may explain its position in Penn National Gaming, Inc. (NASDAQ:PENN). One of the worst-performing gaming stocks over the past 12 months, the operator of the Tropicana in Las Vegas has surged nearly 10 percent this month, as Wall Street has given the regional gaming firm some love because of a spate of recently announced sports betting partnerships.

The Stars Group (NASDAQ:TSG), a company that has a 20-year sports betting pact with Penn National, is another one of 1060 Capital’s gaming positions, though one of the smaller ones at just six percent of the portfolio.