On Friday, Truist Securities initiated stock coverage of Golden Entertainment. Dubbing the company the “Silver State Warriors,” analyst Barry Jonas placed a “Buy” rating on GDEN shares with a price target of $45 apiece. Golden stock was trading at $34.06 at the time.
Due to Golden’s shedding of a Maryland casino (to Century Casinos) and its out-of-state slot routes, the company was deemed a pure Nevada stock play. Jonas wrote that it had “a unique footprint … we see a setup for inflecting organic growth in the U.S.’s most favorable gaming market.”
Golden, he wrote, “now has one of the best balance sheets in gaming, with an appetite for increasing capital returns” and dealmaking. Jonas also cited unlocked value in its real estate (including The Strat, Arizona Charlie’s Boulder, and Arizona Charlie’s Decatur, all in Las Vegas). The current stock valuation, he declared, “includes no value for its operations.”
In its post-slot route era, Golden’s holdings comprise eight Nevada casinos and 69 bars and taverns. The casino division provides 61 percent of Golden’s revenue and 53 percent of its cash flow. Nevada taverns supplies another 23 percent of revenue and 33 percent of cash flow, with the balance coming from Rocky Gap and slot routes.
Jonas described Golden’s business model as “back to the basics,” capitalizing on population growth in southern Nevada, low business taxes, and “stable” regulators. In the aftermath of the new Culinary Union labor pact and with Strat renovations largely behind it, Golden was seen as a source of growing free cash flow.
The current stock valuation, Jonas wrote, “doesn’t reflect improving fundamentals, a significant reduction in leverage, or a real estate ownership backstop.” He felt that company priorities would include delivering greater shareholder value, possibly through a dividend program.
“Additionally, we think GDEN’s real estate could be worth as much as the entirety of its current equity value, with the OpCo essentially free,” Jonas opined.
He cautioned that, being at the mercy of consumer discretionary spending, Golden was vulnerable to “an uncertain macro environment” that could drive down its valuation. However, The Strat, recipient of $150 million in recent capex, was expected to see positive return on investment soon.
Unlike many of its industry fellows, Golden has no plans to get into online gambling, Jonas concluded.
