Shares of Reno-based Eldorado Resorts were upgraded in value by a Wall Street analyst who said in an investors note Tuesday the company has grown from a $200 million market capitalization to a casino operator worth $2.5 billion in just three years.
Macquarie Securities gaming analyst Chad Beynon said Eldorado, which doubled in size last year through an acquisition of regional casino rival Isle of Capri, still presents a valuable investment opportunity.
“We think Eldorado may be close to announcing its next acquisition,” Beynon said. “We estimate a $1 billion acquisition … would add $3-$4 of equity value given Eldorado’s ability to drive operational improvements.”
He added that Eldorado’s stock price rose 36 percent within the first six months of announcing the deal for Isle.
Beynon called Eldorado the best opportunity to invest in a regional gaming company. In addition to its flagship hotel-casinos in Reno, Eldorado operates casinos and racetrack casinos in 10 markets, including Colorado, Ohio and South Florida.
He also hinted that consolidation is a two-way street. Regional rivals, he said, might be spying Eldorado because of “minimal overlap” between operators in several key markets.
“We believe a (real estate investment trust) could be eager to finance such a deal,” Beynon said. “We also expect Eldorado to grow (cash flow) by double-digits on average in its big four markets.”
Meanwhile, the stock prices of regional gaming companies are down 10 percent year-to-date. Still, Beynon said consumer demand remains strong despite weather issues during the first part of the year. He said Eldorado has avoided weather issues in Reno, which benefit first quarter cash flow.
However, Beynon downgraded his view of Las Vegas-based Red Rock Resorts. He said a 57 percent increase in the company’s stock price since it’s initial public offering two years ago has run its course. The market has already valued the company’s planned renovations of the Palms and Palace Station in Las Vegas into the stock price.
Beynon said other developments along the Strip — the recent purchase of the Hard Rock, renovations to the Stratosphere, additional hotel room upgrades at Caesars Entertainment properties, and the planned openings of The Drew at the former Fontainebleau site and Resorts World Las Vegas — could cut into the Palms projected $100 million a year in cash flow,
