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Golden Entertainment Stock Has Glittery Potential, According to Analyst

Golden Entertainment, Inc. (NASDAQ:GDEN) stock could be the next big thing among gaming equities. One analyst says the Strat operator is likely to report a significant earnings beat when it delivers quarterly results on Thursday.

Construction on the Strat Las Vegas in 2019, seen here. An analyst is bullish on Golden Entertainment, owner of the property. (Image: Twitter)

In a note to clients today, Roth Capital analyst David Bain rates Golden a “buy,” with a $26 price target. He implied it could more than double from the Oct. 30 close. With the assistance of the analyst’s bull call, shares of the gaming company are higher by more than six percent in midday trading. For investors willing to wait a while, upside could exceed that $26 forecast.

In line with 2022 enterprise value/earnings before interest, taxes, depreciation and amortization (EBITDA) and 2021 free cash flow yield peer averages infer shares would trade for $34/$37, respectively,” writes Bain.

Vital to Golden’s near-term outlook, Bain says the operator is already hitting pre-pandemic levels of EBITDA generation, which is a rarity in the gaming industry these days. He notes his third- and fourth-quarter EBITDA forecasts are 77 percent and 35 percent above Wall Street consensus.

Something to the Audacious Estimates

Las Vegas-based Golden operates 10 casinos. One is the Rocky Gap in Maryland. The other nine are in Southern Nevada, including the Strat.

The bulk of the company’s other venues are largely dependent on the Las Vegas locals (LVL) segment, one that’s showing signs of life against the challenging coronavirus backdrop. In coverage of some Golden rivals, analysts are highlighting strength in this demographic, noting it’s impressive considering things are still sluggish on the Strip.

The operator has some other benefits to offer investors, including owning more than 60 PT’s Taverns across Southern Nevada and its route business. This includes slot machines found in non-gaming venues, such as bars, grocery stores, restaurants, and more.

“Approximately 80 percent of GDEN revenue is generated from ‘next door’ gaming taverns anchored by mid-to-upscale millennials, slot routes, and local casino play,” said Bain. “Adding to its Strip revenue from local play, revenue generation from locals would be ~85 percent of the total.”

Confirming that the stock is perhaps grossly undervalued, the Roth Capital analyst estimates the value of Golden’s Las Vegas real estate at $1.2 billion, more than triple the company’s market capitalization of $366.25 million.

Sports Betting Cards to Play

Golden Entertainment is rarely mentioned in the sports betting conversation. But Bain lays out a case as to why that should change.

Assuming Caesars Entertainment is successful in acquiring William Hill, the British bookmaker is obligated to pay Golden $75 million upon closing of that transaction, according to the Roth analyst. That would add $2.67 a share in value to Golden stock.

Additionally, as one of six license holders in Maryland, the company is likely to benefit from what’s expected to be easy approval of sports wagering there on Election Day. That’s worth at least $1.60 a share to Golden equity, says Bain.

Shares of Golden are down 33 percent year-to-date, but higher by 286.48 percent off the March lows.

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