Brightstar Lottery Stock Has Multiple Growth Levers, Says Analyst

• iLottery, international contracts could bolster case for the stock
• Analyst sees “improving setup,” says Italy concerns may be overstated

In quiet fashion, shares of Brightstar Lottery (NYSE: BRSL) are higher by almost 33% over the past 90 days, and at least one analyst believes the gaming stock could offer more upside.

In a new report to clients, Stifel analyst Jeffrey Stantial reiterated a “buy” rating on the lottery operator while boosting his price target to $20 from $18, implying upside of nearly 18% from the September 22 close. Formerly known as International Game Technology (IGT), Brightstar is the entity that remained after IGT sold its global gaming and PlayDigital units to Apollo Global Management (NYSE: APO) earlier this year.

Contract timing & well-documented macro resilience suggests only moderate downside risk near-term, with likely growing investor appreciation for lottery’s acylicality amidst worsening macro data,” observes Stantial. “This supports a durable & growing 5%+ dividend yield, which is further supplemented by positive estimate momentum & potential multiple re-rate underpinned by jackpot normalization, further cost-out runway, and accelerating organic growth algorithm.”

The point about lottery resilience against the backdrop of economic strain is simple and well-documented. While consumers are dialing on back on visits to Las Vegas due to macroeconomic concerns, lottery is one of the most recession-resistant offerings in the gaming space, implying consumers will spend a few dollars here and there on tickets regardless of the state of the broader economy.

iLottery Could Be Catalyst for Brightstar Stock

While iLottery isn’t yet generating fervor on par with internet casinos or online sports betting, it’s a growth segment in its own right. Some analysts see massive opportunity with internet lotteries, noting that the market could eventually rival that of online sports betting.

“Unpacking each, state-by-state adoption of iLottery has proven gradual, though management emphasized recent acceleration for existing contracts following rollout of a cloud solution, while Italy iLottery has started to accelerate following app improvement & buy-in from regulator/retailers,” adds Stantial.

Speaking of Italy, earlier this year Brightstar paid $2.6 billion to renew its lottery contract there following a competitive bidding round. That sparked fears among investors that the company overpaid to retain a deal it’s held for more than 30 years, but Stantial argues those concerns may be overblown because Brighstar can leverage that agreement to potentially grow its iGaming, iLottery, and online sports betting exposure in the Eurozone’s largest wagering market.

Brightstar Lottery Could Be a Shareholder Rewards Story

In July, the lottery operator unveiled $1.1 billion in investor perks, including a $500 million share repurchase program and a special dividend, indicating it has some level of commitment to shareholder rewards.

Over the past several years, the company has been a devoted buyer of its own shares and has the capacity to materially grow its dividend while reducing outstanding liabilities.

“We expect the remainder of discretionary free cash flow to be allocated to debt pay-down and potentially opportunistic repurchases, with net leverage expected to drift marginally above 3x target level following the final Italian Lotto upfront fee tranche,” concludes Stantial.