Everi, PlayAGS Supported by Strong Tailwinds, Says Analyst

Posted on: November 26, 2021, 11:05h. 

Last updated on: November 26, 2021, 03:52h.

Casino equities are in an extended rough patch. But some analysts see opportunities among gaming suppliers, such as Everi Holdings (NYSE:EVRI) and PlayAGS (NYSE:AGS).

Everi PlayAGS
Gaming device makers such as Everi are slumping. An analyst says the stocks will recover. (Image: Las Vegas Review-Journal)

In a note to clients today, B. Riley analyst David Bain reiterates “buy” ratings on both slot machine makers, with a $40 price target on Everi and a $21 forecast on PlayAGS. Bain’s bullish call on those names arrives as the S&P 500 slipped 2.3 percent in its worst intraday performance since February. It also arrives as gaming stocks plunged amid fears of the nu variant of the coronavirus.

According to checks, EVRI and AGS continue to benefit from strong tailwinds/spend and game-specific results in primary markets (both companies garner a majority of gaming earnings before interest, taxes, depreciation and amortization from a percentage of the win per day from its respective installation base in the field),” says the analyst.

Bain’s $40 target on Everi is nearly double the $21 handle the stock closed at today. And his $21 call on PlayAGS is more than triple where that stock finished at.

Regional, Tribal Casinos Could Lift Everi, PlayAGS

Steadiness among regional and tribal clients could be catalysts for Everi and PlayAGS into year-end and going forward to 2022.

The bulk of AGS customers are in Florida, Oklahoma, and Texas — the former two home to some of the largest tribal casinos in the US. Additionally, PlayAGS stock is highly levered to strength in regional casinos, because 80 percent of its recurring revenue comes from those venues. Those are positives at a time when regional and tribal casinos are performing well.

“Industry buying from tribes has shown strength in 4Q21 (the full industry is fairly close to in-line buying with the same period of 4Q19, according to our checks, after a long drought due to COVID), and we believe significantly stronger industry buying carries forward to CY22E,” adds Bain. “Notably, regional casinos are positioned to reinvest in the gaming floor following a strong year that showcased gaming (vs. non-gaming amenities) as the core driver of casino recoveries. We continue to see reinvestment in this area as the primary focus for casinos versus new towers/steak restaurants.”

Another Idea

Bain also highlights Inspired Entertainment (NASDAQ:INSE), noting that name has some buffer against COVID-19 and that its share price is likely too low.

“INSE, which should generate ~50 percent of its CY22E EBITDA online, is not experiencing a negative impact from any COVID concerns in its primary international (U.K.) land-based market to date, according to sources,” said the analyst. “Further, INSE stock disruption may be being fueled by arbitrage as SPAC warrants expire in December, yielding an artificially lower stock price, in our view.”

Bain has a $30 price target on Inspire. That’s an inspired call, to be sure because the stock closed at $13.19 today and is off eight percent over the past week.