NeoGames Buying Opportunity Afoot Following Post-Earnings Slide, Says Analyst

Posted on: August 13, 2021, 10:59h. 

Last updated on: August 16, 2021, 06:26h.

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

NeoGames (NASDAQ:NGMS) stock tumbled nearly 15 percent Thursday following its second-quarter earnings update, and that slide is continuing today. But one analyst called reaction to the results “puzzling” while noting a buying opportunity in shares of the online lottery operators is now afoot.

NeoGames stock
NeoGames stock advertised at the Nasdaq. A recent share slump could be a buying opportunity, says an analyst. (Image: Twitter)

In a note to clients released late Thursday, Stifel analyst Steven Wieczynski reiterates a “buy” rating on the internet lottery provider, with a $71 price target. That implies upside of nearly 49 percent from the Aug. 12 close.

Management also cited growing awareness/momentum for iLottery expansion with state regulators. While the state session calendar has slowed up, we think this bodes well for off-peak sessions and the 2022 setup,” said the analyst.

He sees room for more upside, as investors reassess views on internet casino and sports betting equities. That could prompt them to evaluate the still overlooked iLottery industry.

NeoGames Q2 Results Were Strong

Reaction to NeoGames’ results for the June quarter may indeed be puzzling, because the Israeli gaming company reported revenue of $21.4 million, easily beating the Wall Street consensus estimate of $18 million. The operator also lifted its 2021 sales outlook by three percent.

Wieczynski says the selloff could be attributable to investors overreacting to competition in Michigan — NeoGames’ biggest US market — from online casino and sports betting rivals. The analyst calls concerns “overblown,” while highlighting the company’s impressive ramp-up in Alberta, Canada.

“Management cited an expanding offering and general strength in Alberta as key drivers in Q2 outperformance,” he said.

In the US, NeoGames is also operational in New Hampshire, North Carolina, and Virginia, and is pursuing iLottery contracts in Alaska, Connecticut, Maryland, Massachusetts, Missouri, Ohio, and Oregon. On a conference call with analysts, NeoGames management discussed increasing state-level awareness of internet lottery as a tax revenue generator.

As is the case with iGaming and sports betting rivals, more state legalization would be a positive catalyst for NeoGames and perhaps its share price.

NeoGames Stock Has Growth Potential

While it doesn’t generate buzz on par with internet casinos or sports betting, iLottery is growing. Data confirms as much, and that could be a positive for NeoGames stock.

“2Q21 iLottery gross sales (wagers) increased +18% y/y, but decreased -10% q/q to $1.2 billion. The annual increase was driven by a combination of factors, including sustained macroeconomic tailwinds (Federal financial support, declining unemployment, rising wages, elevated discretionary income), strong underlying growth trends among many markets, and new market growth,” according to Eilers & Krejcik Gaming.

Stifel’s Wieczynski says NeoGames’ guidance reflects a 21 percent sequential decline, which is likely contributing to the weakness in the shares. But he adds that reaction is “overblown” because management has a penchant for guiding in a conservative fashion.