Commercial Gaming

Bally’s a Sports Betting Play as Investors Fret Over Integration, Says Analyst

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.

Bally’s on the Atlantic City Boardwalk, seen above. An analyst says the stock is undervalued following recent weakness. (Image: ABC News)

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.

Bally’s Stock Crimped by Buying Binge

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.

Sports Betting Biz Shouldn’t Be So Cheap

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.

Todd Shriber

Gaming Financials, Casino Business----Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund, where he specialized in trading sector and international ETFs leading up to and during the financial crisis. Currently, he analyzes, researches, and writes on ETFs for a variety of Web-based publications and financial services firms. Shriber has been quoted in Barron's, CNBC.com, and The Wall Street Journal. His work has been published on sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business, and Nasdaq.com. He joined the Casino.org news writing team in 2019, and lives in Southern California, where he enjoys golf and taking his black lab to the dog park. When in Las Vegas, he likes to wager on college football, the NBA, three-card poker, and roulette, even though he knows better. Email: todd.shriber@casino.org

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Todd Shriber