Golden Entertainment (NASDAQ:GDEN) stock is one of Monday’s best-performing gaming equities after the Strat operator drew praise from JPMorgan.
JPMorgan analyst Omer Sander initiated coverage of Golden Entertainment with an “overweight” rating and $60 price target, implying upside of 23 percent from the Oct. 22 close. The stock is higher by four percent today on Sander’s call.
Las Vegas-based Golden operates 10 casinos, nine of which are in Southern Nevada, including the Strat, and that geographical perch is compelling, according to Sander. The JPMorgan analyst says Nevada is the most attractive gaming market in the US because of its combination of low taxes, limited supply growth, and rising population.
The company generates 85 percent of its revenue from the Las Vegas locals segment and is the dominant force in hyper-local Las Vegas gaming offerings.
Post-COVID-19 Golden Glitters
Golden stock is up 145 percent year-to-date and 270.57 percent over the past year, easily making it one of the best-performing gaming equities over those time frames. JPMorgan’s Sander highlights some of the reasons why Golden is shining among casino peers.
Those include a “structurally better business” following the coronavirus pandemic, featuring a streamlined labor and marketing expenditure model that’s fostering higher margins and rising earnings before interest, taxes, depreciation and amortization (EBITDA).
Some analysts believe the combination of pent-up demand, rising levels of coronavirus vaccinations, and vibrancy in the key Las Vegas locals (LVL) market will fuel more upside for the shares.
Assuming a 15 percent return on investments made at Strat, that property could generate $65 million in earnings before interest, taxes, depreciation and amortization (EBITDA). At a multiple of 12.8x, that values the venue at $832 million, a sum that doesn’t include the operator’s 17 acres of undeveloped land, according to prior forecasts made on Golden stock.
JPMorgan’s $60 price target on Golden is derived from a 2023 cash flow yield of 11 percent, based on estimate of $6.60 per share.
Golden Benefiting from Industry Consolidation
While Golden isn’t directly participating in gaming industry consolidation as of yet, it’s benefiting from that theme.
The operator is receiving $75 million by way of Caesars Entertainment (NASDAQ:CZR) acquiring William Hill, a deal that’s completed. Additionally, recent Las Vegas Strip property sales could be adding value to Strat’s real estate and Golden’s unused Strip acres.
Some analysts estimate Golden’s Strip real estate is worth anywhere from just north of $1 billion to nearly $1.5 billion at the midpoint of the range, and perhaps as high as $2.3 billion in an extremely bullish scenario. Today, Golden’s market cap is $1.4 billion, indicating it’s not reflecting the value of those property assets.
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