Flutter Stock Called an Undervalued Consumer Cyclical Name

• The stock is off 51% in 12 months
• It trades a deep to discount to a research firm’s fair value estimate
• Analyst sees compelling long-term outlook

With the stock off 50.91% over the past year, it might be difficult for some market participants to get behind Flutter Entertainment (NYSE: FLUT). On the other hand, shares of the FanDuel owner may be a bargain hunter’s delight, at least according to financial analysts Morningstar.

There is a case for Flutter as one of the consumer discretionary sector’s value ideas, particularly at a time when value in that group is difficult to come by.

Morningstar analyst Erin Lash extols a preference for apparel and travel and leisure stocks as consumer cyclical value ideas. The latter industry is the home group to gaming equities, including Flutter.

We see particularly attractive opportunities in the travel and leisure and apparel subsectors, which trade at 21% and 34% discounts, respectively, reflecting investors’ trepidation about the uncertain macroeconomic and consumer spending backdrop,” observes Lash. “To counter this, we expect firms to lean into innovation and to enhance their value propositions to ensure their brands continue to win with consumers across income cohorts.”

Flutter, one of the largest US operators of online sportsbooks and internet casinos, is one of a small number of consumer discretionary stocks earning a five-star rating from Morningstar, imply the shares are in fact undervalued.

Flutter Stock May Be Inexpensive Growth Story

While stocks like DraftKings (NASDAQ: DKNG) and Flutter haven’t shown much in the way of rebound signs of late, some market observers argue the duo have been unjustly punished.

“Trading around a 58% discount to our $255 fair value estimate, narrow-moat Flutter strikes us as undervalued,” adds Lash.

“While the market seems to be pricing in severe competitive pressures, we expect the continued legalization of sports and i-gaming, combined with continued user growth in states that have already passed legislation, to result in average annual US revenue growth of 9% over the next 10 years.”

Additionally, FanDuel Predicts presents Flutter with an avenue for offsetting some prediction markets risk, though some investors have expressed concern with the up to $300 million Flutter is planning to spend on that front this year.

Flutter Is a Margin Expansion Story

While Flutter runs an asset-light business model, nonetheless it operates in a capital-intensive industry where promotional spending and technological investments, among other expenditures, are essential. That spending weighs on margins, but Flutter is seen as one of the gaming names with the potential to grow margins at an impressive rate over the long-term.

“In addition, we expect operating margins to expand to 19% over the next decade, up from 6% in 2024, as revenue scales and Flutter’s risk management platform reduces marketing, technology, and general and administrative costs,” concludes Lash.