Macroeconomic worries are weighing on gaming stocks, according to a Bain analysis released Monday morning. It stated that shares were trading several turns below their historical average, “despite reaching new gaming records and a history of sector revenue resilience.”
The Bain stock boffins looked for Golden Entertainment to exceed projections for its second-quarter earnings. They believed this would focus investors’ attention on Golden’s long-term positions and its accelerated return on investment to shareholders.
Displaying continued faith in struggling Atomic Golf, the analysts predicted a July-December ramp-up for Golden. Aside from the golfing attraction next to The Strat, this was thanks to increasing convention patronage in Las Vegas and an improved ability to capitalize on the Las Vegas Grand Prix.
Golden still has at least $90 million in capital set aside for stock buybacks, but Bain thinks this could be exhausted by year’s end. The company’s low leverage (less than two times cash flow) and real estate value were said to “offer a lower-risk high-reward investment opportunity at current levels.”
Despite lower earnings projections, Bain raised its stock target on Everi Holdings from $11 per share to $14.25. This was done to reflect Apollo Management’s $14.25-per-share offer for the company, which Everi has accepted.
Bain forecast second-quarter cash flow of $81.4 million, down from $87 million. It also lowered its 2024 full-year estimate of cash flow from $355 million to $340 million.
The analysts said these “changes reflect EVRI’s early-stage product launch customer acceptance ramp, which may be slightly elongated due to its likely upcoming merger with IGT’s gaming business, relatively flat Q/Q slot industry trends, and no notable new openings or expansions in the period.” They thought the best chance for cash-flow growth would come in the fourth quarter of this year.
They also felt that long-term synergies between International Game Technology and Everi were under-appreciated by Wall Street. While staying with a Neutral rating on the stock, they opined that the Apollo buyout would be a plus for Everi and IGT alike. Due to the buyout, Everi will not be holding a second-quarter earnings call.
Turning to Inspired Entertainment, the analysts wrote that in a manufacturing field dominated by merger-and-acquisition activity, it remained “one [of] the last, small, independent, public gaming suppliers.” They added that its asset-light strategy represented the bulk of its cash flow.
Bain analysts felt this made Inspired’s “core business … unique with little overlap to most strategic buyers.” They were of the opinion that management’s second-quarter commentary would be in line with prior earnings guidance, leading to strong performance in the back half of 2024 and throughout 2025.
The analysts pointed to “game expansion for its hybrid dealer offering, Virtual Sports expansion, and other [July-December levers.” They were also of the opinion that Inspired was seeking out “strategic alternatives” for its theme-park businesses.
“We view this as a significant potential positive — positioning a higher mix of digital EBITDA, increasing margins, reducing seasonality, reducing capex, and creating a more simplified, salable business,” the Bain analysts wrote. Like Golden, Inspired reports earnings this Thursday.
