Trump, Home Solutions Remain Clunkers

You can make a bearish or bullish case on the stock right now, and I'll grant there's a 50-50 chance of the stock moving 20% in either direction. So unless you're betting on volatility through options trades or just like gambling on even-money bets, the stock is not a great investment.

That said, if you believe the Atlantic City casino market will rebound at some point and think the company's massive spending on technology improvements will actually put its margins in line with its peers, then the stock is probably worth looking at as a buy. If the company can slow down its capital expenditures in coming years, while also growing its earnings before interest, taxes, depreciation and amortization at the rate analysts expect, then the stock has a reasonable valuation.

The bear case is that Trump has a huge debt burden and is squeaking by on its covenants with lenders at a time when the Atlantic City market shows no signs of getting better. One covenant requires Trump to maintain an interest coverage ratio of 1.35, based on its EBITDA and interest expense. Currently, the ratio is over 1.5 times, Trump CFO Dale Black told me this week after earnings.

If operating income continues to remain under pressure, Atlantic City revenue continues to fall, and the introduction of player-tracking technology does not provide the margin boost that Trump expects, then there is a reasonable shot that Trump breaches this covenant this year.

About 85% of Trump's permanent capital is debt. Such a covenant breach would be a huge negative for shares.

There's also little evidence that Atlantic City is improving. In July, total casino revenue in the city fell 2.3% from a year earlier, the New Jersey Casino Control Commission said Friday. Slot revenue in the market fell 5.1%, while table revenue increased 4.9%.