Bally’s Stock Weakness Could Be Long-Awaited Buying Opportunity, Say Analysts

Posted on: May 11, 2021, 09:58h. 

Last updated on: July 5, 2021, 02:39h.

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

Once among the hottest gaming equities, Bally’s (NYSE:BALY) is following the broader group lower. That’s despite reporting record first-quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

Bally's stock
Bally’s Atlantic City. Analysts say weakness in the stock could soon abate. (Image: NJ.com)

Some analysts are sticking up for the casino stock after EBITDA for the first three months of the year came in slightly ahead of a previously released forecast. It was supported as Bally’s management delivered enthusiastic commentary on March and April land-based casino visitation trends.

A significant part of Bally’s stock thesis is the company’s ongoing push into the fast-growing internet casinos and online sports betting sector. While the operator’s moves on those fronts are well-documented, one analyst argues they aren’t adequately reflected in the shared price.

“Currently, the market is giving very little valuation credit for BALY interactive, both relative to its peers and on an absolute basis. Pro forma for the pending acquisition of Gamesys, we estimate the market is ascribing about $450 million of value to the US sports and iGaming business,” said Union Gaming analyst John DeCree in a note to clients today.

He reiterates a “buy” rating on the shares while reducing his price target to $95. While that’s lower than his previous call, DeCree’s new forecast implies upside of almost 73 percent from the May 10 close.

Bally’s Stock Has Upside Surprise Potential

As estimates for the online casinos and sports betting markets are mostly bullish, they vary wildly, Wall Street is taking a closer look at total addressable market estimates. That could work in Bally’s favor.

While investors are beginning to scrutinize market share estimates for many players in the US betting and iGaming space, BALY is poised to surprise to the upside,” adds DeCree.

Bally’s is preparing to launch its sports betting mobile app in Colorado and will add at least three more states to that roster before the end of 2021. Accounting for pending acquisitions, the company will run 16 casinos in 11 states — the bulk of which offer regulated sports wagering. That increasing geographic footprint should help the operator procure more iGaming and sports betting licenses.

DeCree sees “a significant rerating is in store” for Bally’s stock as its mobile app comes online.

Remember the Margin Story

There’s plenty of chatter about Bally’s online operations, but it shouldn’t be lost on investors that the company is delivering impressive margin expansion. That’s saying something because regional operators are sporting some of the best margin improvements in the gaming industry.

In the first three months of 2021, Bally’s margins jumped 35.4 percent year-over-year, according to Stifel analyst Jeffrey Stantial.

“On a same store basis, management noted their properties are running at about +500bps of margin expansion relative to pre-COVID levels,” the analyst said in a note. “Management sees the bulk of this as sustainable.”

He rates Bally’s stock a “buy,” with a $75 forecast.