Full House Resorts (NASDAQ:FLL) stock is up more than 5% in early trading Tuesday after an analyst said the regional casino operator is a catalyst-rich story with double potential.
In a note to clients today, B. Riley analyst David Bain initiates coverage of the gaming equity with a “buy” rating and a $20 price target, which is more than double where the shares currently reside. He adds Full House offers significant earnings before interest, taxes, depreciation and amortization (EBITDA) upside and that the stock is inexpensive relative to peers. If Full House’s 2024 enterprise value/EBITDA falls in-line with peers, it’s possible shares could be worth $28, says the analyst.
We forecast ~$150M of baseline per annum property EBITDA (pre-corporate expense) by CY24E, up from CY22E’s ~$50M,” said Bain.
The analyst points out that “significant EBITDA growth catalysts” could arrive as soon as the next five months pending the opening of a temporary casino in Waukegan, Ill. Followed by the debut of the Chamonix Casino Hotel in Colorado in mid-2023.
Full House Stock Cheap Compared to Rivals
It’s often elusive to find growth at a reasonable price, but if Bain’s estimates prove accurate, that’s exactly what Full House is offering.
The analyst forecasts 2023 and 2024 EBITDA growth of 119% and 49%, respectively, compared to 9% and 7% for the operator’s peer group. Even with those impressive growth expectations, Full Trades at the lowest multiple compared to rivals, says the B. Riley analyst.
“Even including project capex before new debt for its permanent casino development in Illinois with no attributable corresponding cash flow, FLL trades at CY24E EV/EBITDA of 4.0x,” adds Bain. “We believe the valuation disconnect could quickly converge given FLL’s first transformative EBITDA expansion catalyst is scheduled to begin in just ~5 months.”
The operator is opening American Place in Waukegan and that venue could generate 2023 and 2024 EBITDA of $38 million and $50 million, respectively, marking stellar return on investment. Bain notes those forecasts could prove conservative because the venue will be located in the most affluent Illinois county and it will be closest casino for 1.2 million people.
Although it’s down 23.62% year-to-date, Full House stock isn’t a stranger to compelling Wall Street calls. Some of that is attributable to analysts’ affinity for the operator’s management team, including CEO Dan Lee.
“Dan Lee was CFO and chief development officer for MGM Mirage when Stephen Wynn was CEO and was instrumental in the development and success of several iconic offerings, including the Bellagio, Treasure Island, the former Monte Carlo, and Borgata,” notes Bain.
The analyst points out that Lee later led Pinnacle Entertainment where he oversaw a quadrupling in that company’s EBITDA. Pinnacle was acquired in 2018 by Penn National Gaming for $2.8 billion.
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