Golden Entertainment Stock Glitters, Offers Big Upside, Says Analyst

Already on a torrid pace, Golden Entertainment (NASDAQ:GDEN) stock offers significant appreciation potential. That’s as the Las Vegas locals (LVLs) segment springs back to life and as more Californians flock to Nevada, among other factors, notes a sell-side analyst.

B. Riley analyst David Bain initiates coverage on the Strat operator today with a “buy” rating and a 12-month price target of $48. That implies upside of 60 percent from the April 27 close. Bain’s report is having a positive impact on Golden stock, as the shares are up six percent in early trading on volume that appears poised to eclipse the daily average. The stock is higher by 58 percent year-to-date.

We believe GDEN’s locals-based gaming and entertainment portfolio uniquely and acutely correlates with short-/long-term growth drivers, though its stock valuation is over 3 turns below peers,” said the B. Riley analyst.

His earnings before interest, taxes, depreciation and amortization (EBITDA) estimates on the gaming operator for the first three quarters of this year are five, seven, and nine percent above consensus forecasts, respectively.

Las Vegas-based Golden operates 10 casinos, nine of which are in Southern Nevada, and the other is the Rocky Gap in Maryland.

Golden Stock Loving Las Vegas Locals

As is the case with many smaller gaming operators, Golden Entertainment is heavily dependent on local traffic. That makes the stock a play based on government stimulus and increasing coronavirus vaccination levels.

“GDEN’s portfolio is currently benefiting from multiple post-COVID factors, including the return of the core older demographic to its local casinos. ~80 percent-plus of GDEN EBITDA is generated in NV (mostly local play), one of the fastest-growing populations, underpinned by migration from California,” said Bain.

More Positives for Golden Investors

Golden’s route business operates in Montana and Nevada, with Illinois and Pennsylvania possible near-term additions. Should be Pennsylvania join that fold, it could be a major catalyst for Golden stock.

“GDEN has already partnered with multiple locations, should Pennsylvania routes be approved. We calculate every 1,000 locations serviced by GDEN equate to $7.35 per share,” said Bain. “Pennsylvania’s longer-term market could host ~30,000 locations, and GDEN could service ~25% of the market, in our view.”

The gaming company also owns 17 acres of unused Strip land, which Bain says is worth $4.60 a share. Golden also owns all of the land on which its casinos operate — property worth an estimated $1.2 billion. Neither factor is accounted for in the share price, says the analyst.

Another point in favor of Golden is that, by way of a previous deal, it’s due to receive $75 million from William Hill should the British sportsbook operator be acquired. Caesars Entertainment (NASDAQ:CZR) closed its purchase of William Hill last week. Bain says that influx of cash could be used to fund return of capital to Golden investors in the fourth quarter of this year, though he didn’t specify if it’d be in the form of buybacks or dividends.