PlayAGS Stock Shaping Up to Be 2023 Redemption Story

Posted on: December 16, 2022, 05:18h. 

Last updated on: December 16, 2022, 05:46h.

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

Having shed 25.63% of its value this year, PlayAGS (NYSE:AGS) is following other gaming device manufacturers to the downside this year, and is one of the more egregious offenders in the group. That’s not preventing at least one analyst from waxing bullish on the moribund stock.

PlayAGS stock
PlayAGS slot machines seen in an investor deck. An analyst says the stock has big upside potential. (Image: PlayAGS)

In a note to clients today, B. Riley analyst David Bain reiterated a “buy” rating on PlayAGS stock with a $14 price target. That’s well above today’s closing print of $5.05. The shares are down 22.43% since the start of the fourth quarter.

The analyst recently met with PlayAGS management, noting he came away positive on the company’s new Spectra 43 cabinet and potential opportunity in Texas, among other factors.

AGS’ new Spectra 43 cabinet continues to perform near 2.8x house average at an expanding number of locations. Its new high-denomination game launch, a new product segment for AGS, is also outperforming. We believe AGS has multiple go-forward segments fills that could further accelerate market share gains over the next 12 to 18 months,” wrote Bain.

Casino visitation trends are strong across the US, compelling operators to extend the slot upgrade cycle owing to the high margins offered by gaming machines. Specific to AGS, the company is adding market share and derives 70% of its sales from recurring revenue streams.

Texas Could Be Long-Term Lift for PlayAGS Stock

In June, the Supreme Court ruled that the Ysleta del Sur Pueblo tribe can offer bingo games on its reservation near El Paso. There’s speculation that could open the door for that group and the Alabama-Coushatta tribe to eventually open traditional tribal gaming facilities in Texas.

While that’s a long way off, some Texas lawmakers favor gaming expansion and analysts are tantalized by the impact a market as vast as Texas could have on PlayAGS stock. The company has established relationships with tribal operators in the second-largest state.

“We believe the Texas customer will announce its expansion by 1H23E. AGS should announce a long-term agreement for additional, participation units for the casino expansion in the same time frame. While the casino’s permanent expansion may not complete until late CY24E, we believe a temporary expansion with more games could come before then,” added Bain.

The analyst points out that the added recurring earnings before interest, taxes, depreciation and amortization (EBITDA) stream in Texas could add $3 to $5 PlayAGS’ share price.

PlayAGS Stock Cheap, Apollo Overhang Gone

Last month, PlayAGS announced that private equity firm Apollo Global Management (NYSE:APO) is selling its 22% stake in the gaming company. While that news sent the stock tumbling, analysts view it as positive and removal of an overhang that long hindered PlayAGS stock.

“With Apollo no longer a shareholder, AGS can add new jurisdictional licenses, including Missouri, Colorado, and Minnesota, representing ~60,000 units. We believe there have been typical, short-term structural equity hurdles following the mid-November secondary, but that much of it has run its course,” concluded Bain.

Additionally, PlayAGS is deeply discounted relative to its peer group. As Bain noted, the stock trades at 38% discount to 2022 and 2023 enterprise value/EBITDA estimates.