Wells Fargo Starts Coverage of Gaming Stocks, Bullish on Boyd, Caesars, DraftKings, MGM
Posted on: September 15, 2021, 11:08h.
Last updated on: September 15, 2021, 11:08h.
Wells Fargo is initiating coverage on a variety of gaming stocks and the bank is expressing a preference for names with Las Vegas footprints and exposure to the fast-growing iGaming and regulated sports wagering industries.
The bank starts coverage of 11 gaming equities, placing “overweight” ratings on six and “equal-weight” grades on the remaining five. Familiar names in the “overweight” camp incorporate Boyd Gaming (NYSE:BYD), Caesars Entertainment (NASDAQ:CZR), DraftKings (NASDAQ:DKNG) and MGM Resorts International (NYSE:MGM).
MGM and Caesars are the two biggest operators on the Las Vegas Strip and each complement land-based casino operations with rising internet gaming and online sportsbook businesses.
CZR’s sports betting/iGaming organization is worth $42 per share, with all the crucial pieces to swiftly gain industry share, and we have self-assurance in CZR management forging a path to sector major EBITDA,” mentioned Wells Fargo analyst Daniel Politzer. “(two) with its big Las Vegas Strip footprint, CZR is poised to capitalize on robust leisure/discretionary invest and the eventual return of group/convention enterprise and (three) we forecast ~$ten/share of free of charge money flow in 2023, with CZR’s balance sheet enhancing along the way through organic money flow and asset sales.”
Politzer locations a $137 cost target on Caesars, but adds there’s a path for the shares to get to $160. The stock presently resides around $105.
DraftKings, MGM Among Gaming Stock Standouts
The combination of a recovering Las Vegas Strip and the ascent of the BetMGM unit has investors and Wall Street enthusiastic about MGM shares.
MGM will quickly have much more than $ten billion in cash on hand, which could be deployed for accretive acquisitions. Additionally, BetMGM is now the second-largest online sportsbook in the US and the dominant iGaming operator. While MGM owns half the business — Entain Plc (OTC:GMVHY) owns the remainder — Wells Fargo estimates the unit is worth $12 to MGM’s share value.
“Given MGM’s extended-term track record in allocating capital, we comprehend this concern, although believe this time is diverse and that MGM will physical exercise prudence and sound judgement,” mentioned Politzer. “And while we do feel M&A will likely be the most substantive use of MGM’s capital, we consider that more than the past 18 months, MGM’s board/management group has earned the benefit of the doubt and that its $10B money balance must be viewed as an asset, not a liability.”
Concerning DraftKings, Wells Fargo says that organization can capture practically a quarter of the iGaming and sports betting markets by 2025. Politzer notes DraftKings’ cross-selling possibilities, including media, are catalysts for the shares. He has a $73 cost target on the name, above the Wall Street consensus of $70.
Bullish on Boyd, Too
Boyd Gaming is up 36.49 % year-to-date due in massive portion to growing vibrancy in the essential Las Vegas locals (LVL) demographic.
Wells Fargo highlights that segment as a catalyst for Boyd stock even though noting the operator’s 5 % stake in FanDuel is worth $12 a share. Politzer has $92 price target on Boyd, implying roughly 50 % upside.
Speaking of FanDuel, WellsFargo also has an “overweight” rating on Flutter Entertainment (OTC:PDYPY), which owns the other 95 % of FanDuel. The other “overweight” name in the bank’s gaming stock universe is Churchill Downs (NASDAQ:CHDN).
Wells Fargo rates Bally’s (NYSE:BALY), Las Vegas Sands (NYSE:LVS), Penn National Gaming (NASDAQ:PENN), Rush Street Interactive (NYSE:RSI) and Wynn Resorts (NASDAQ:WYNN) “equal-weight.”