William Hill Should Be Viewed as Growth Stock, Says Jefferies Analyst

William Hill (OTC:WIMHY) is trading higher by more than 10 percent Tuesday after Jefferies analyst James Wheatcroft lifted his price target on the British bookmaker’s London-listed shares to 330 pence from 305 pence. The price is more than double where the stock closed on Monday.

The projection of 330 pence, or 3.30 British pounds, is also more than double where the stock resides today, even when accounting for a roughly nine percent rally in London. In issuing what’s now the highest price forecast on the name, Wheatcroft echoes a familiar refrain on the name: opportunity in the US that isn’t being adequately factored in by investors.

William Hill boasts the leading US sports betting market share, yet we see zero value priced in,” said the Jefferies analyst in a note titled, No. 1 in America Yet Zero Value Priced In.

Wheatcroft adds that William Hill controls 29 percent of the real money sports wagering market in the US, and that “the prize is substantial” as more states join the sports betting party.

Opportunities Flourish

An obvious area for growth in the US for William Hill is in the online arena. That’s where investors are pushing multiples higher as they price in increased legalization and margins that are compelling relative to brick-and-mortar sportsbook.

Noting that William Hill should be valued like a high-growth stock, Wheatcroft says a 10 percent share of US online sports wagering would be worth 170 pence to the operator’s equity price.

The analyst adds that the IAC/InterActiveCorp’s (NASDAQ:IAC) recently revealed $1 billion investment in MGM Resorts International (NYSE:MGM) is further validation of the opportunity set available in the US online sports betting market.

Hail Caesars

A primary issue issue facing internet sports wagering operators in the US is cost of customer acquisition, and as DraftKings’ second-quarter results confirm, big spending on that front can lead to losses for operators. However, William Hill has an ace up its sleeve in the form of the new Caesars Entertainment (NASDAQ: CZR).

The sportsbook operator had a long-standing relationship with Eldorado Resorts, the buyer of the old Caesars, that entitles it to run any sportsbooks that company acquires.

Following the completion of Eldorado’s acquisition of Caesars, WMH enjoys enhanced market access, now to 25 states with the largest licensed footprint in the USA,” said Wheatcroft.

Caesars owns 20 percent of William Hill’s US business, a stake the casino giant received last year following a deal with the bookmaker. Wheatcroft says it’s possible that the UK company’s US internet business could eventually be spun out from the parent firm in an effort to maximize shareholder value.

The analyst also highlighted the sportsbook firm’s deal with CBS Sports, announced earlier this year, as a plus, saying it should bolster brand recognition and drive cost-effective customer acquisition.