Golden Entertainment Offers Cash Flow, Capital Return Potential, According to Analyst

Posted on: February 16, 2022, 11:38h. 

Last updated on: February 16, 2022, 01:38h.

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

Quietly one of this year’s best-performing gaming equities, Golden Entertainment (NASDAQ:GDEN) is soaring again today. That’s after a sell-side analyst issued a bullish report on the Strat owner.

Golden Entertainment
The Strat Las Vegas, seen above. An analyst sees big upside for operator Golden Entertainment (Image: Las Vegas Review-Journal)

In late trading, shares of Golden are higher by four percent on above-average volume. That’s extending a run that’s seen the casino stock surge nearly 16 percent over the past week. The surge began after Roth Capital analyst Edward Engel restarted coverage of the name with a “buy” rating and a $70 price target. That implies an upside of 23.8 percent from the Feb. 15 close.

With Golden sporting a free cash flow (FCF) yield of 12 percent, Engel says the stock is an “underappreciated” FCF story. Las Vegas-based Golden operates 10 casinos, nine of which are in Southern Nevada, including the Strat.

Analysts and investors also like the strength in Golden’s various businesses, including its gaming route unit (a business where they install slot machines in places like bars, restaurants, truck stops, etc.) and PT’s Entertainment.

PT’s controls 60 bars, pubs, and casual dining restaurants. Those are recovering strongly following the 2020 shutdowns forced by the COVID-19 pandemic.

Golden Opportunity

Following a spate of suspensions amid the onset of the pandemic, dividends are still hard to come by in the gaming industry. But Engel believes Golden will soon return capital to shareholders.

After last decade’s M&A, deleveraging and renovation cycle, we expect GDEN shift focus to buy-backs/dividends,” said the analyst. “This offers a rare capital return story for gaming investors, and is unique vs peers targeting costly iGaming expansion.”

The company currently doesn’t pay a dividend. But with limited near-term expansion plans and debt refinanced at more favorable terms, Golden has an opportunity to reward investors. It could introduce buybacks and potentially a dividend.

“After refinancing debt, we expect GDEN to accelerate capital returns to shareholders in 2H22, with a focus on share buy-backs and some introduction of a dividend,” said the analyst.

Macro Trends Benefiting Golden

Golden was one of the star gaming stocks of 2021. But some market observers attributed that bullishness to transitory factors, such as government stimulus and pent-up demand.

Engel says there’s more to the story, and that amid ongoing vibrancy in the Las Vegas locals market — a key constituency for Golden — benefits that accrued to the operator last year could prove more permanent than some experts expect.

“Those visiting LV suburbs will find growing similarities between SoCal and Phoenix/Tempe, where taxes, weather and affordability are driving a great migration,” concludes the analyst. “While population data remains limited for 2021, we’ve seen evidence that migration to the Las Vegas region has accelerated since early 2021, driving an acceleration in housing prices, employment, and population.”