Bally’s Acquisitions, iGaming Moves Make for Catalyst-Rich Story, Says Analyst

Posted on: January 12, 2021, 10:27h. 

Last updated on: January 12, 2021, 01:10h.

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

Bally’s Corp. (NYSE:BALY) morphed from a nearly anonymous regional gaming outfit thanks to an aggressive deal-making last year, making it one of the fastest-growing companies in the space. Wall Street is betting that trend will continue in 2021.

Bally's stock
Bally’s Atlantic City, seen here. An analyst is bullish on the operator, citing multiple factors. (Image: Seeking Alpha)

In midday trading Tuesday, Bally’s stock is trading higher after Macquarie analyst Jordan Bender reiterated an “outperform” rating on the name while lifting his price target to $61 from $52.

Last week, the gaming company said it’s partnering with Pennsylvania businessman Ira Lubert to build a Category 4 mini-casino (no more than 750 slot machines and 30 table games) in the vicinity of Penn State University in Centre County. Bender said that when that venue is operational, it will drive $10 million to $13 million of land-based earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) for Bally’s.

The highlight for investors, however, is the operator gaining an internet casino license in the Keystone State and controlling 100 percent of the economics from that business.

The online sports betting/iGaming license in Pennsylvania will be a significant revenue generator for the company, given the size of the market,” said the Macquarie analyst in a note to clients. “Our 2025 estimated total addressable market (TAM) for Pennsylvania is $1.3 billion.”

Assuming Bally’s can achieve management’s stated goal of grabbing a 10 percent market share in the Keystone State, it would generate net gaming revenue of ~$115 million there, according to Bender.

Rapid Online Advance

Prior to 2020, Bally’s controlled just a handful of casinos in small regional markets, with a limited online footprint.

Through a series of individual property acquisitions spanning several states, the operator not only increased its geographic diversity but also forged into markets where online casinos or sports wagering is permitted. It leveraged deal-making acumen to become a rising star in the internet gaming landscape.

The company formerly known as Twin River Worldwide Holdings (TRWH) last year paid $20 million to Caesars Entertainment for rights to the Bally’s brand. It reinforced its plan to become more recognizable via a November 2020 deal with Sinclair Broadcast Group to put the Bally’s name on 21 regional sports networks (RSNs). Those deals and others could pay dividends this year.

“Bally’s can conservatively achieve mid-single-digit online market share despite the highly fragmented iGaming and sports space,” said Bender.

The analyst says the company’s Bet. Works purchase gives it a “margin advantage over peers,” said the analyst. Bally’s purchased the sports wagering technology company last November for $125 million in cash and equity.

Upbeat Outlook

The Macquarie analyst estimates that Pennsylvania alone is worth $11 to Bally’s share price, while the operator’s overall online and sports wagering business is worth $35. That indicates investors aren’t paying much for any growth the company generates from its land-based casinos.

Bender’s $61 12-month price forecast implies upside of more than 23 percent from Bally’s Jan. 11 close and is well above the Wall Street consensus of $49.10.

The analyst says the company will spend much of this year integrating recently acquired assets and finalizing pending deals but adds pre-pandemic growth rates are achievable in 2022.