Bally’s (NYSE:BALY) stock is lagging the broader gaming equity group over the past several months, as investors express concern about the company’s ability to adequately digest recent acquisitions. But one analyst sees the issues hindering the shares being resolved and the opportunity for investors to embrace a now-discounted name.
In a note to clients, Stifel analyst Jeffrey Stantial reiterates a “buy” rating on the Rhode Island-based casino operator, while boosting his price target to $81 from $75. That new forecast is about 33 percent higher than where Bally’s stock closed on June 25, but there’s more. Stantial notes that in a bull case scenario, it’s “not out of reach” the shares could ascend to $122. That’s more than double the current levels.
Execution risk and upcoming capital raises likely remain lingering concerns for the time being, though we think this should resolve itself in time and see BALY as one of the most compelling opportunities left in our broader coverage, with multiple avenues for share appreciation,” said the analyst.
In addition to an array of bolt-on deals and regional casino purchases, Bally’s said in March it’s acquiring online gaming operator Gamesys for $2.7 billion — its largest buy to date. That transaction, while almost universally applauded on Wall Street, is expected to require additional financing, and that could be stoking apprehension among investors.
In early 2020, Bally’s was a sleepy regional casino operator with a handful of venues in a small number of states. That’s changing rapidly.
Fast-forward to June 2021, and the company made acquisitions to bolster its sports wagering footprint, get into the daily fantasy sports arena, and add online gaming to its mix. Those deals don’t include pending purchases of land-based casinos that will significantly bolster the operator’s geographic exposure. Add in other accords, and Bally’s will soon have market access in at least 14 states.
In other words, Bally’s is one of the most acquisitive companies in the gaming industry, and while that’s largely been a plus for the stock in the past, the recent rapid-fire pace of dealmaking is giving investors pause. Stifel’s Stantial says it’s not a major cause for concern.
“Given management’s track record with prior M&A, we are less concerned here and would expect BALY’s brick and mortar business to re-rate higher as management closes and integrates remaining acquisitions,” he said.
The analyst adds current enterprise value (EV) estimates on Bally’s imply a land-based casino business worth $2.8 billion. That rises to $7 billion for the company when factoring in $1 billion for domestic iGaming/sports betting and $3.1 billion for the Gamesys acquisition. On that basis, Bally’s trades at just 6.75x Stifel’s estimated 2023 earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR). That’s a discount to peers, according to Stantial.
While Bally’s is making clear its intent to be a player on the sports betting stage, it’s been slow in rolling out consumer-facing products on that front, and that’s been an overhang on the shares.
As Stantial notes, a $1 billion valuation on the operator’s iGaming and sports wagering arms imply significant discounts to peers — less than a third of the next-closest rival, which is Wynn Interactive. As that gap narrows, Bally’s stock could benefit.
“We see meaningful upside here, as BALY executes on their unique online gaming strategy, with 1) BALY benefiting from diverse market access (properties in 11 states for 20% of the population), 2) a ~14M member marketing database, 3) a full in-house tech stack (Gamesys and Bet.Works), and 4) unique top of funnel customer acquisition opportunities,” adds the Stifel analyst.