Bally’s Stock Sentiment Close to Bottom, Says Analyst

Posted on: May 19, 2022, 02:40h. 

Last updated on: May 19, 2022, 03:06h.

Bally’s (NYSE:BALY) is among the many repudiated gaming equities. A 12-month decline of 53.49% confirms as much. But at least one analyst says sentiment on the downtrodden name is nearing a bottom.

Bally's stock
Bally’s casino in Kanas City. An analyst says more clarity is on the way for the stock. (Image: Bally’s)

In a note to clients, Stifel’s Jeffrey Stantial reiterates a “buy” rating on the regional casino operator with a $49 price target, implying the shares can nearly double from a close of $25.14 today. The note arrives following the research firm’s meetings with key Bally’s executives. As the analyst notes, some of the overhang weighing on Bally’s stock is attributable to “complexity, execution, and messaging.”

Some of those issues arrived by way of hedge fund Standard General — Bally’s biggest shareholder — attempting to acquire the gaming company for $38 a share, and the casino operator ultimately rejecting that offer. The Rhode Island-based company proceeded to make a tender offer for $500 million worth of its stock — a move that may have further muddied the near-term waters.

Based on our recent discussions with investors, we expect complexity and unclear messaging have been key drivers of underperformance of-late. Specifically, we heard questions throughout our meetings regarding 1) the decision to launch a tender rather than agreeing to the Standard General takeout offer and 2) an announcement of the tender ahead of receiving financing,” notes Stantial.

The analyst believes that as management adds clarity to the stock’s story, and as online gaming and regulatory trends improve in the UK, among other factors, upside is possible.

Bally’s Stock Has Catalysts, Drawbacks

Undoubtedly, Bally’s has catalysts. Those include its status as a dedicated buyer of its own shares, a restrained approach to marketing spending on domestic online casinos and sportsbooks, and growth in the UK.

Other positives include the operator owning the bulk of the real estate on which it operates gaming venues, the potential for a Japan footprint, and the possibility of balance sheet-firming moves. Conversely, there are points of concern in the investment community, too.

Those include how the operator will finance improvements at Tropicana Las Vegas, as well plans to build a $1.7 billion integrated resort in Chicago — an effort that’s already encountering resistance among local politicians.

“We came away from our meetings with the impression that management fully understands the concerns in the market today, and recognizes it is incumbent on them to improve messaging and simplify the story moving forward which we see likely improving as quickly as alongside the planned tender,” adds Stantial.

Bally’s Stock Somewhat Misunderstood

Down 34% year-to-date, it’s not a stretch to say Bally’s stock is one of the more misunderstood stories in the gaming industry.

As Stifel’s Stantial points out, investors may not be giving the operator adequate credit for factors such as added Atlantic City room supply, improved player quality, the addition of a convention center at its Lake Tahoe venue, completion of Kansas City expansion, and various cost-cutting moves.

“All-told, despite recent volatility, we see more of an upside bias to consensus estimates for the casinos segment, despite conservative commentary on lower-income play keeping us constructive on the brick & mortar business, despite very tempered investor expectations,” concludes the analyst.