Golden Entertainment Can Shine Among Casino Stocks

Posted on: October 20, 2022, 11:56h. 

Last updated on: October 20, 2022, 12:57h.

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

Golden Entertainment (NASDAQ: GDEN) stock is drawing sell-side praise as a potential star in the making among casino equities.

Golden stock
The Strat Hotel Casino in Las Vegas. An analyst is enthusiastic about operator Golden Entertainment. (Image: OnTheStrip.com)

In a note to clients today, CBRE Equity Research analyst John DeCree resumed coverage of the Strat operator with a “buy” rating and a $58 price target. That implies upside of 45% from the October 19 close. He cited compelling valuation, a sturdy balance sheet, and the vibrant Las Vegas locals market as among the reasons to be bullish on Golden stock.

Moreover, GDEN has unique financial flexibility following the sale of Rocky Gap and could begin returning significant capital to shareholders in the form of buybacks and dividends, which given the company’s limited capital base, should translate to meaningful value,” wrote DeCree.

In August, Golden announced the sale of the Rocky Gap Casino Resort in Flinstone, Md. for $260 million in cash to Century Casinos (NASDAQ: CNTY) and VICI Properties (NYSE: VICI). That transaction, which is scheduled to close in the middle of next year, is equivalent to more than 20% of Golden’s current market capitalization of $1.14 billion.

Golden Sturdy Balance Sheet, Possible Takeover Target

Golden’s properties are located throughout the Las Vegas Valley, levering the operator to vibrancy in that market.

Further cementing the case for Golden stock is an increasingly firm balance sheet, as highlighted by DeCree. Those highlights include mentions that, since the end of last year, the gaming company trimmed debt by $200 million and repurchased nearly $50 million worth of its own shares.

As for a dividend, those are hard to come by in the gaming space at the moment. But Golden can likely afford a modest quarterly distribution. It could be to the company’s advantage to consider a payout because it would potentially broaden Golden’s investor base.

DeCree also mentioned that Golden could be a takeover target, though he didn’t highlight specific potential suitors aside from saying the company would be appealing for a “scaled strategic gaming operator.”

Indeed, Golden is affordable and, perhaps, appealing to any number of larger prospective suitors, particularly due to its all-Nevada profile, which would be attractive to a rival seeking more exposure to the state. Analysts believe that due to the wobbly macroeconomic environment, large-scale mergers and acquisitions activity is likely on pause over the near term.

Other Casino Stocks in Focus

DeCree also started coverage of Boyd Gaming (NYSE: BYD) and Red Rock Resorts (NASDAQ: RRR) — two of the dominant names in the Las Vegas locals market — with “hold” ratings.

He placed a $60 price target on Boyd, implying upside of 15.3% from the October 19 close. His $44 price objective on Red Rock is 15.7% above the Wednesday close.

The analyst is long-term bullish on the Las Vegas locals segment. But rising interest rates and the specter of a recession in 2023 could weigh on casino stocks, including Boyd and Red Rock, he said.