Bally’s Investors Understand Risks, Online Story Still Compelling, Says Analyst

Posted on: February 9, 2021, 10:45h. 

Last updated on: February 9, 2021, 12:48h.

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

Bally’s Corp. (NYSE:BALY) stock is one of the most scintillating stories among gaming equities over the past year. With that torrid pace come risks, but one analyst believes investors are mindful of the potential pitfalls and that the name still offers upside.

Bally's Stock
A bettor places a sports wager at Bally’s Atlantic City. An analyst is mostly bullish on the operator. (Image: Wayne Parry/AP)

In a note to clients, Stifel analyst Steven Wieczynski reiterates a “hold” rating on the regional gaming operator. That’s a tepid grade, but the analyst lifts his price target to $60 from $50. After more than doubling in the span of just 90 days, Bally’s stock is flirting with $60 today after hitting an all-time of $59.47 earlier in the session.

Bally’s is leveraging acquisitions to evolve into a digital gaming force. But land-based casinos are still a pivotal part of the investment thesis. Bally’s will soon operate 15 gaming properties in 11 states when pending transactions are finalized. That’s some of the risk investors must face with the name, says Wieczynski.

Consensus estimates for Q4 have been drifting lower across our broader regional operator coverage, as rising cases and state restrictions/closures have been a sequential headwind since Q3 earnings,” said the analyst.

He points out that fourth-quarter revenue in Rhode Island could be slack because the company’s two gaming venues there were shuttered from Nov. 30 through Dec. 22. He adds that is the case with other regional operators, as strength in the South/Southeast should augment soft results in other regions. Rhode Island is currently Bally’s biggest market.

For Bally’s Stock, It’s About the Future

The coronavirus is now part of every day in the US for a year, indicating many market participants are likely at peace with what are dismal 2020 results for gaming and leisure companies.

Wieczynski estimates Bally’s will post a 2020 loss of 84 cents a share on revenue of $375.9 million. He forecasts earnings of $2.19 a share on sales of $929.4 million this year, as earnings before interest, taxes, depreciation and amortization (EBITDA) more than triples. He’s more bullish on 2022, modeling for per share profit of $3.33 on turnover of $1.25 billion.

“We think the risk to Q4 earnings is fairly understood by investors by this point, and expect the focus to remain on 1) the 2022E outlook for the land-based business (where we are raising estimates), and 2) initial color on BALY’s unique and compelling online gaming strategy,” said the analyst.

Online Metamorphosis

Just a year ago, Bally’s was a small regional gaming outfit with just a handful of properties with scant footprints in the rapidly growing iGaming and sports betting industries. That sleepy status is quickly changing.

With yesterday’s news that it’s buying free-to-play games and gaming enterprise software provider SportCaller, Bally’s has announced three acquisitions since mid-November that push it further into the sports betting technology and daily fantasy sports segments. Those add to an agreement with Sinclair Broadcasting to put the Bally’s brand on 21 regional sports networks (RSNs).

Bottom line: Bally’s does have obvious traditional casino exposure. But investors and Wall Street are increasingly looking at it as an online gaming/sports betting idea.

“Management continues to put together a unique and compelling online strategy, recently announcing acquisitions of the fastest-growing DFS site and a F2P games provider,” said Wieczynski.