Posted on: December 10, 2020, 09:44h.
Last updated on: December 10, 2020, 09:44h.
It’s one of the gaming industry’s highest fliers in recent weeks, but following a run that’s seen the stock jump almost 75 percent over the past month and more than double in 90 days, Bally’s Corp. (NYSE:BALY) may need to cool off, according to one analyst.
Stifel analyst Steven Wieczynski resumed coverage of the regional gaming company with a “hold” rating and $50 price target, a forecast implying only modest upside from the Dec. 9 close of $48.76. That tepid commentary appears to be weighing on Bally’s stock today as the shares are lower by 10 percent in midday trading.
While the analyst applauded the company’s recent decisions to join forces with Sinclair Broadcast Group, applying the Bally’s name to 21 regional sports networks (RSNs) owned by the media company, and acquire sports betting platform provider Bet.Works for $125 million, he adds markets rapidly priced in those growth opportunities.
BALY has an impressive pro-forma growth trajectory, though with shares up +89 percent year-to-date (S&P +15 percent) and rising COVID-19 headwinds (including Rhode Island casino closures) we would prefer to see a greater dislocation in valuation or BALY grow into their pro-forma footprint before getting constructive,” said Wieczynski in a note to clients.
He says the $50 price projection is based on the shares trading at 8x 2022 estimated earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) and assigns $22 a share for the operator’s iGaming/sports wagering business.
Since Bally’s revealed the Bet.Works and Sinclair deals last month, analysts became broadly enthusiastic on the stock with three of the five covering it placing the equivalent of “very bullish” ratings on the name.
The consensus price outlook on the gaming equity is $55.40, which is well above Wieczynski’s $50 call and one that implies 25 percent upside from where the shares trade at this writing.
The Stifel analyst highlights factors in favor of the company formerly known as Twin River Worldwide Holdings (TRWH), including a regional footprint that should serve the operator well when COVID-19 restrictions ease, growth in core operations, management’s swift moves to interject the company into the sports betting conversation and the likelihood Bally’s will continue its tradition of smart acquisitions.
However, Wieczynski says those traits are “balanced by several factors, including: 1) strong recent and YTD share performance has already priced in a meaningful sports betting/iGaming opportunity and PF land-based footprint, 2) rising COVID-19 cases likely pressure near-term results, especially given relative exposure to the RI market (which is seeing casino closures), and 3) there is still tremendous uncertainty and risk as BALY executes on their new sports betting and iGaming strategy.”
The next few months are going to be busy for Bally’s as the company sets out to rename its gaming venues with the brand acquired from Caesars for $20 million.
The operator is also in the process of wrapping up several purchases that will expand its roster to 14 casino in 10 states, a geographic diversification quest that’s vital in reducing the company’s dependence on the competitive Northeast market.
“We are waiting for a more opportunistic time to recommend owning shares,” adds Wieczynski.