Century Casinos Rips Higher as Analyst Forecasts Two-Bagger

Posted on: August 10, 2020, 11:01h. 

Last updated on: August 10, 2020, 02:42h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

On a mixed day for gaming stocks, Century Casinos (NASDAQ:CNTY) is one of the names trading noticeably higher, a move hastened by bullish comments from a sell-side analyst.

Century Casinos Boosted By Analyst
Century Casino Edmonton, one of the venues contributing to the bullish thesis for this stock. (Image: Yellow Pages Canada)

Shares of the small-cap regional gaming company are higher by 8.32 percent in midday trading. That’s after Stifel analyst Brad Boyer reiterated a “buy” rating on the stock while boosting his price forecast to $9 from $7. The new target implies the stock could nearly double from last Friday’s close.

The stock is up 32.11 percent over the past month, good for one of the best performances in the gaming industry. That period includes a better-than-expected second-quarter earnings report, and news that the operator is selling a Canadian asset, raising cash, and generating long-term rental income in the process.

Looking ahead, we are hard-pressed to find another company in our regional operator coverage better built to endure in a post-COVID world,” said Boyer in a note to clients.

Colorado-based Century operates gaming properties in its home state, Missouri, and West Virginia, and has international venues in Canada, Poland, and in the UK.

An Underappreciated Story

Even with the exposure outside the US, the investment community largely views Century as a regional operator and a hyper-local one at that.

With Las Vegas and other so-called destination markets still scuffling in the wake of the coronavirus pandemic, the regional designation is favorable for gaming equities these days. But Boyer argues investors aren’t fully appreciating the Century story.

“We expect to continue to see a level of resilience in the company’s operations that feels grossly underappreciated in the context of the current trading multiple,” said the analyst.

Boyer notes that many of the operator’s properties are in markets where other entertainment options are sparse and that Century generates the bulk of its profits from slot machines, which have higher margins than table games.

Reopenings Going Well

Century reopened all of its Polish casinos in May, and those venues are operating at 100 percent capacity. In the Canadian province of Alberta, operations restarted in mid-June, and the company recently got the go-ahead to increase slot capacity by 20 percent and 29 percent, respectively, in Calgary and Edmonton.

Restarts in Colorado, Missouri, and West Virginia are proving solid, prompting Boyer to raise his 2020 and 2021 revenue estimates on the company to $308 million and $401 million, up from $270 million and $308 million.

Going out to 2022, the Stifel analyst lifts his earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) estimate on Century to $86 million from $74 million.

“Looking ahead, we expect that as revenues continue to recover, margins will gradually compress from initial post-COVID levels. Our target price moves to $9 ($7 prior), reflecting the output of our revised 22E sum-of-the-parts analysis,” said Boyer.