Golden Entertainment Stock Shines Way to New Highs

Posted on: May 7, 2021, 09:43h. 

Last updated on: June 30, 2021, 10:28h.

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

Golden Entertainment (NASDAQ:GDEN) is soaring Friday, adding to an already blistering pace of recent gains. That’s after an analyst swiftly upped his price target on the Strat operator.

Golden stock
Outside the Strat Las Vegas. Operator Golden Entertainment is soaring today. (Image: Pinterest)

In a note to clients today, B. Riley analyst David Bain reiterates a “buy” rating, while upping his price forecast on Golden to $60 from $48. Analysts issuing the same grades on stocks with updated price estimates is an everyday occurrence in financial markets. But it’s noteworthy in this case because it was barely more than a week ago when Bain initiated coverage on the casino operator with a $48 projection.

We believe shares are staged to significantly reset higher, with 2023 enterprise value/earnings before interest, taxes, depreciation and amortization (EBITDA) 6.4x versus peers at 10x and a free cash flow (FCF) per share valuation less than half comparables,” said the analyst.

Gaming equities are broadly higher Friday, but Golden is the standout. In midday trading, it’s higher by 15.55 percent on volume that’s already nearly double the daily average. Bain’s new price target implies upside of almost 68 percent from where the casino stock closed on Thursday.

Going with Golden Stock

Las Vegas-based Golden operates 10 casinos, nine of which are in Southern Nevada, including the Strat. That venue generated record EBITDA in the first quarter.

While the operator has a heavy footprint in its home state, it’s not dependent on Strip traffic and trends. Rather, it’s more levered to the fast-recovering Las Vegas locals (LVL) segment and favorable demographic trends, such as the influx of retirees from cold-weather states to Nevada, and Californians fleeing high taxes.

For investors, those points are relevant because, as Bain points out, the LVL market accounts for 85 percent of Golden’s EBITDA. Even with that significant percentage, the analyst argues the operator’s locals exposure is “underappreciated” by the investment community.

“LVL and regional play is benefiting from near-term and long-term drivers, including increasing capacity allowances and the vaccine rollout working a return of a core older demographic,” said Bain.

Golden: ‘More Special’

Owing to impressive margin expansion, rising vaccination levels, and pent-up demand, there’s no shortage of enthusiasm for regional gaming equities. However, no two operators are exactly alike, and there are clear reasons, in Bain’s view, why Golden is a standout among regional names.

“Even more unique to GDEN is its Nevada offerings acutely match a higher income/wealth migration from California, particularly its millennial-anchored bar and tavern distributed gaming business,” said the B. Riley analyst. “Further, the introduction of the Raiders, new Strip capacity, and strong housing values correlate to make GDEN’s portfolio more ‘special’ than other regional casino companies, in our view.”

Almost $15 currently isn’t factored into the Golden stock price, according to Bain. That breakdown comes by way of $10 for potential approval of its Pennsylvania route business and $4.60 for the $1.2 billion worth of unused Las Vegas real estate owned by the company.