Brightstar Lottery Stock Hits Jackpot with Deutsche Coverage

Shares of of Brightstar Lottery (NYSE: BRSL) surged Wednesday after Deutsche Bank analyst Steven Pizzella resumed coverage of the stock.

The analyst restarted coverage of the lottery giant with a “buy” rating and $15 price target, implying upside of 40% from the June 30 close. Investors are cheering the news as the stock is higher by 6.16% in midday trading. Pizzella highlights Brightstar’s protected monopoly status and resiliency against trying economic backdrops as among the reasons for investors to consider the stock.

Lottery is one of the most recession-resistant segments in the gaming industry, but investors may not be fully appreciating that element in the Brightstar equation as the stock is down 26.36% year-to-date. The company provide the technology that supports Mega Millions, Powerball and a slew of other lottery games.

Brightstar Stock May Be Ideal for Certain Investors

Brightstar has been hailed as one of the gaming industry’s leading beneficiaries of artificial intelligence (AI), but it lack the pizazz of a typical AI stock. Still, it has some advantages that may be enticing to patient value investors.

As Deutsche Bank’s Pizzella points out, Brightstar is a low beta name with a “highly predictable earnings stream” fortified by monopoly positioning and long-term contracts with national and state governments.

Additionally, lottery demand is steady relative to other gaming segments. While bettors may pull back on some wagering pursuits when consumer sentiment weakens or during times of economic duress, lottery sales grow at a steady 3% to 4% yearly rate.

“In a gaming sector that feels increasingly picked over, and shrinking by the day, we see a differentiated, underappreciated opportunity in BRSL, for long term, value oriented investors,” observes Pizzella. “Given the underperformance in BRSL shares, which have underperformed our gaming coverage universe by ~2,700 bps in the YTD, we view this as an attractive entry point.”

Bet on Brightstar Shareholder Rewards

Brightstar Lottery stock stands out for another reason: The shares yield 8.58% while many gaming companies sport low yields or don’t pay dividends at all. The lottery technology provider has increased its payout in two consecutive years.

It’s also a dedicated buyer of its own shares and a capital return plan unveiled a year ago topped Wall Street expectations. Plus, the stock is inexpensive.

“Accordingly, at ~5x our 2027E adjusted EBITDA, and we believe disconnected from the underlying long term fundamentals, we see multiple catalysts to drive both earnings growth and multiple expansion including; 1) an underappreciated resilient low beta cash flow stream, 2) upside from iLottery adoption and legalization, and 3) a strong return of capital profile supported by a solid balance sheet,” concludes Pizzella.