Analyst “neutral” on Everi, emphasizes value at share price target of $12

April 5, 2024 2:31 PM
Photo: CDC Gaming Reports
  • David McKee, CDC Gaming Reports
April 5, 2024 2:31 PM
  • David McKee, CDC Gaming Reports
  • United States

Saying that its probable price range was “bound, for now,” B Riley Securities analyst David Bain put a “neutral” rating on Everi Holdings stock, with a price target of $12 per share.

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“To be clear, our neutral rating does not suggest we are close to being negative on EVRI. We believe there is strong value at the current stock price and a solid argument for shares to go higher,” Bain explained. Everi shares closed Friday at $9.24.

He elaborated that already-known structural issues, plus “well-telegraphed” lower earnings in the first half of this year, put a ceiling on Everi’s potential. Bain “can envision becoming highly constructive on shares” as key performance indicators improve and the Everi merger with International Game Technology achieves critical mass.

The analyst felt that the aforementioned merger would be a boon to the stock. It could, he wrote, “work to rerate shares to a sustainable, much higher valuation level as it becomes better understood by investors.”

Bain continued that the merger was laboring under the perception that combining two suppliers would result in one-and-a-half suppliers. He understood skepticism surrounding the deal, in view of past difficulties in similar transactions between other merged companies.

“However, we see enough dissimilarities from certain past transactions to give relative solace in this case,” Bain argued. Primarily, the projected leverage of as much as 3.4 times cash flow was low when compared to mega-mergers of recent history.

“Further, product overlap is not as acute as other past supplier mergers, which could allow for certain revenue synergies.” For example, Everi has great access to the international market, as well as to slot routes. IGT has a bigger Class II business.

“Generally, the most significant overlap between IGT and EVRI is the mechanical stepper category. Mechanical reels are by far the minority versus the video form factor. However, the stepper market has grown more competitive for EVRI over the past several quarters,” Bain elaborated.

Bain wasn’t, however, without near- and medium-term worries himself. Among them were that Everi’s plan to reverse key performance indicators would take longer than the company’s own deadline (by the end of June). Another was that Everi’s benchmarks for immediate new-game sales “will only fuel investor skepticism” among buyers that IGT doesn’t support Everi’s strategy, “even if it is not the actual case.”

The analyst was also concerned that Wall Street was expecting synergies from Everi faster than the company could deliver them, compared to other mergers. Finally, he felt that investors would only become more positive once regulatory approvals were obtained.

In closing, Bain opined that Everi and the resulting merged company were “deeply undervalued. However, due to certain items discussed above, we believe shares are range-bound in the near-term.”

Bain was of the opinion that Everi shares could trade at seven times cash flow in the long term and justify a $19-per-share stock price. At the time of his report, Everi was trading at $9.59 per share.