Golden Entertainment Stock Slump Could Be Golden Opportunity

Posted on: May 8, 2022, 03:00h. 

Last updated on: May 8, 2022, 04:36h.

Golden Entertainment (NASDAQ:GDEN) stock joined other gaming equities to the downside last week, sliding 3.88%. But analysts remain bullish on the Strat operator.

Golden stock
Golden Entertainment’s Rocky Gap Casino-Resort in Maryland. Analysts remain bullish on the stock despite recent weakness. (Image: Rocky Gap Casino-Resort)

While the shares are off almost 13% over the past month, that weakness could be creating opportunity. Somemarket observers view it as a well-run operator with strong free cash flow-generating capabilities and exposure to favorable demographic trends.

GDEN’s visible net free cash flow is mostly generated from what is now the most dynamic gaming market worldwide, Southern Nevada, and combines with a lack of project / capex risk – scarce and well-suited for today’s risk-off environment,” said B. Riley analyst David Bain in a note to clients last Friday.

He rates Golden stock a “buy” with a $75 price target, which implies upside of 62.6% from the May 6 close.

Golden Stock Story not Fully Appreciated

Golden isn’t immune to the downdraft ensnaring gaming equities this year — one caused by high inflation and increasing concerns about a looming recession.

Still, Bain argues there’s a lot to like with the regional casino operator, which focuses on the vibrant Las Vegas locals market while also running the Rocky Gap casino-hotel in Maryland.

“We continue to believe investors undervalue GDEN’s NV portfolio, which is benefiting from wealth migration to NV, increased home equity values, increased travel, increasing conventions/attendance and augmenting entertainment/events,” adds the analyst. “Further, its Maryland casino continues to benefit from lack of new competition, higher margins, and general travel trends.”

The Strat is also contributing to the Golden thesis. While the venue isn’t on the Strip, it’s close, and draws a mix of tourists and locals.

“1Q22 occupancy compares to CY19 occupancy of ~90%. We calculate an additional $12M to $16M of additional per annum earnings before interest, taxes, depreciation and amortization (EBITDA) (well over half of which, at the mid-point, is upside to our forecast) from occupancy rates rising back to normalized levels,” notes Bain.

With Golden Stock, Cash Is King

Adding to the point that Golden stock isn’t getting the credit it deserves are the following: the company is repurchasing stock, generating abundant free cash flow, and isn’t currently planning big spending on new projects — all potentially favorable points at a time when markets are punishing profligate spenders with weak balance sheets.

Additionally, Golden owns all of its real estate — meaning it has levers to pull should it need to raise capital — and trades at noticeable enterprise value/EBITDA discounts relative to its peer group.

“Visible, growing cash flow is primarily generated from wholly-owned gaming assets in NV which capture Strip, locals, and hyper-local upside from an ongoing, positive market dynamic and an intense management focus on FCF for an accelerated return of capital to shareholders,” concludes B. Riley’s Bain.