Next Catalyst: The First Drive Shack

Imperial Capital’s George Kelly expects Drive Shack Inc DS shares to remain rangebound until the first Drive Shack opens in about 9–12 months.

The analyst maintains an In-Line rating on the company, while lowering the price target from $4.00 to $3.75.

“We are staying on the sidelines until we have more visibility into Drive Shack,” Kelly mentioned, while adding that the company’s golf portfolio appeared to be fully valued at present, given Drive Shack’s “high mix of leased and managed courses and expected cash burn.”

Q4 Results

For the fourth-quarter of 2016, the company reported its revenue and adjusted EBITDA at $69.1 million and $5.2 million, respectively, marginally missing the estimated.

Drive Shack ended the quarter with 78 courses, a decline from the 84 in Q3 2016.

Related Link: Golf Tourism Market - Drivers and Forecast from Technavio

2017 Guidance

The company guided to golf EBITDA of $35 million–$37 million for 2017, as compared to the previous estimate of $38/6 million.

Drive Shack’s debt portfolio of $120 million is expected to be “majority recovered by year-end, later than guided on the 3Q 2016 and December conference calls,” Kelly pointed out.

In addition, the company has discontinued its common stock dividend.

Estimates Lowered

The EBITDA estimate for 2017 has been lowered to reflect marginally lower profitability in golf, along with higher management fees.

The operating revenue estimate has, however, been left unchanged.