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 include Boyd Gaming (NYSE:BYD), Caesars Entertainment (NASDAQ:CZR), DraftKings (NASDAQ:DKNG) and MGM Resorts International (NYSE:MGM).
MGM and Caesars are the two largest operators on the Las Vegas Strip and both complement land-based casino operations with rising internet gaming and online sportsbook businesses.
CZR’s sports betting/iGaming business is worth $42 per share, with all the key pieces to quickly gain market share, and we have confidence in CZR management forging a path to industry leading EBITDA,” said Wells Fargo analyst Daniel Politzer. “(2) with its large Las Vegas Strip footprint, CZR is poised to capitalize on robust leisure/discretionary spend and the eventual return of group/convention business; and (3) we forecast ~$10/share of free cash flow in 2023, with CZR’s balance sheet improving along the way via organic cash flow and asset sales.”
Politzer places a $137 price target on Caesars, but adds there’s a path for the shares to get to $160. The stock currently 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 soon have more than $10 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 price.
“Given MGM’s long-term track record in allocating capital, we understand this concern, though believe this time is different and that MGM will exercise prudence and sound judgement,” said Politzer. “And while we do think M&A will likely be the most substantive use of MGM’s capital, we think that over the past 18 months, MGM’s board/management team has earned the benefit of the doubt and that its $10B cash balance should be viewed as an asset, not a liability.”
Regarding DraftKings, Wells Fargo says that company can capture nearly a quarter of the iGaming and sports betting markets by 2025. Politzer notes DraftKings’ cross-selling opportunities, including media, are catalysts for the shares. He has a $73 price target on the name, above the Wall Street consensus of $70.
Bullish on Boyd, Too
Boyd Gaming is up 36.49 percent year-to-date due in large part to increasing vibrancy in the key Las Vegas locals (LVL) demographic.
Wells Fargo highlights that segment as a catalyst for Boyd stock while noting the operator’s five percent stake in FanDuel is worth $12 a share. Politzer has $92 price target on Boyd, implying roughly 50 percent upside.
Speaking of FanDuel, WellsFargo also has an “overweight” rating on Flutter Entertainment (OTC:PDYPY), which owns the other 95 percent 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.”
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