On a mixed day for gaming equities, Accel Entertainment (NYSE:ACEL) stock is trading higher after a Wall Street analyst upgraded the shares and lifted his price target.
In a note to clients today, Macquarie analyst Jordan Bender upgrades the distributed gaming company to “outperform” from “neutral” while moving his price forecast on the stock to $17 from $15, implying upside of 35 percent from the Dec. 2 close.
Of the five analysts covering Accel, four have bullish or very bullish ratings on the stock. Bender’s $17 price target is slightly above the consensus projection of $16.70.
It’s the video gaming terminals (VGT) resiliency, particularly during the COVID-19 restriction periods, that help form our more bullish thesis around ACEL,” said Bender.
The analyst points out that a variety of consumer industries, including gaming operators, were pinched by the wave of delta variant cases of the coronavirus earlier this year, but Accel’s VGT in its home state of Illinois showed little impact on daily per location hold basis.
Accel’s VGTs are found in businesses such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores. The company has more than 2,300 of those machines across the state.
Accel Stock Underappreciated Story
Quietly, Accel is up 24.65 percent year-to-date and even with that impressive run, there are indications the stock is inexpensive.
Bender highlights Accel’s strong balance sheet, noting leverage of just 1x and new debt financing are positives for the company. The analyst also mentions Accel’s $200 million share buyback program, announced late last month, which could allow management to repurchase up to 25 percent of the company’s shares outstanding.
Accel said it plans to repurchase up to $200 million worth of its own shares. Companies are under no obligation to purchase the entire amount announced in a share buyback plan. Regarding Accel’s repurchase scheme, the “timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities,” according to the company.
Bender adds market expansion could be another catalyst for Accel stock, pointing to Georgia, Missouri and Pennsylvania as states to watch.
Accel Terminal Income Still Steady
While more entertainment options are back following coronavirus shutdowns, distributed gaming was resilient during those periods. Bender expects that to hold true, potentially providing some ballast for Accel’s terminal income.
“After almost all sectors reopened, we became further constructive on the strength of this sector. For instance, Location hold per day has been +40-50 percent above ’19 levels since April ‘21, and we have seen little evidence trends are going back to pre-COVID levels,” said the Macquarie analyst.
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