Shares of Everi Holdings (NYSE:EVRI) are higher by nearly 24 percent in midday trading Friday, making the gaming software company one of the best-performing names on the New York Stock Exchange. That rise came after Roth Capital analyst David Bain issued bullish commentary on the stock.
Bain initiates coverage of Everi with a “buy” rating and a $17 price target, implying the stock will more than triple from Thursday’s close at $4.66. The analyst’s note has the stock on pace for its best intraday performance since March 19.
“We believe EVRI deserves the casino supplier peer-high stock multiple,” writes Bain. “Peers lack Fintech, have less earnings visibility, (heavier weighted toward one-time sales) and most have less upside optionality, in our view. Our sum of the parts (SOTP) analysis yields a base-case valuation of $17. We see a high case of $24 and a low case of $11.50.
Assuming Bain’s $11.50 forecast proves accurate, that still means Everi would roughly double from current levels. If the more enthusiastic $24 call winds up being correct, that means the gaming stock would more than quadruple from where it trades at this writing.
In the wake of the coronavirus, there’s significant momentum for casinos to move to cashless payments to cut down on the possible health risks associated with players handing dealers currency in exchange for chips. That shift could be a boon for Everi.
“EVRI’s roughly 70% of Fintech share in North American casinos stages natural/unique add-on technologies addressing casino loyalty, current cashless floor momentum, and outside four-wall opportunities, which other gaming suppliers (and Fintech peers) simply cannot replicate,” said Bain.
Last month, the Nevada Gaming Commission (NGC) endorsed several rule changes that could make cashless wagering systems mainstream in the Silver State. Everi’s CashClub Wallet expands on the old ticket-out/ticket-in technology typically used for kiosks and slot machines by allowing patrons to have winnings deposited directly into a digital wallet. That eliminates the need for gamblers to take chips or tickets to the cage for cash.
Bain also points out that Everi has a recurring revenue model, while its rivals mostly rely on one-time sales. That makes revenue visibility easier to predict with Everi and murkier with competitors.
Other Everi Perks
In the investment community, fintech is often viewed through the lens of disruption to traditional banking services, such as peer-to-peer transfers, credit card swiping, and investing. Companies such as PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) are dominant names in those arenas.
As such, some investors gloss over the growing intersection between fintech and the gaming industry, prompting analysts to say Everi offers up a growth story that’s largely underappreciated.
Bain points out that Everi is more levered to tribal casinos than commercial equivalents. The analyst says tribal operators have “lower COVID geographic and authoritarian concerns and superior recent historical organic growth.”
He says Everi will break even on the basis of earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter, compared to the consensus forecast of a loss of $5 million. For the current quarter, Bain sees Everi generating EBITDA of $37 million, well above the Wall Street average call of $27 million.