Friday, August 19, 2022

Bally’s Stock Slumps as Atlantic City Prompts 2022 Estimate Cuts

Bally’s (NYSE:BALY) stock slumped Thursday after the regional casino operator cut 2022 revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) estimates. The company cited weakness at its eponymous Atlantic City venue and foreign currency headwinds.

The company is now expecting 2022 EBITDA of $535 million to $550 million on sales of $2.2 billion to $2.3 billion. That’s down from a prior EBITDA forecast of $560 million to $580 million on revenue of $2.4 billion to $2.5 billion. Analysts were expecting sales of $2.38 billion.

Given commentary around the guidance cut, we expect the miss on margins reflects difficulties improving profitability at Bally’s Atlantic City,” said Stifel analyst Jeffrey Stantial in a note to clients.

He rates Bally’s stock a “buy,” with a $29 price target. Then known as Twin River Worldwide Holdings, Bally’s acquired the Atlantic City casino in 2020 for the deeply discounted price of $25 million. That’s as Eldorado Resorts and the old version of Caesars Entertainment shed properties in an effort to complete their merger.

The Atlantic City deal was part of a broader three-casino transaction valued at $180 million. The other venues in that package are the Eldorado Shreveport Resort and Casino in Louisiana and the MontBleu Resort Casino in Lake Tahoe, Nevada.

International Results Hindered by Strong Dollar
Bally’s is mostly known for its US casinos and North American iGaming and sports wagering businesses. The company has international exposure by way of British online gaming firm Gamesys, acquired last year for $2.7 billion in the buyer’s biggest acquisition to date.

The Gamesys purchase is widely viewed as a potential long-term positive for Bally’s. That’s owing to the maturity of the internet gaming market in the UK. However, it’s a near-term challenge because that unit’s profits and revenue are denominated in British pounds. That must be converted into US dollars because Bally’s is an American company.

With the dollar ranking as the best-performing major currency this year, owing to multiple interest hikes by the Federal Reserve, Gamesys earnings are being pinched.

“That said, the bulk of the revenue cut, and a portion of the adj. EBITDA cut, to full-year guidance, appears to factor FX headwind,” Stantial added.

North American Online Losses
Bally’s North American digital operations, which include the BallyBet app, may also be behind the stock’s Thursday slump.

North America Interactive was in line, as BALY reported $17 million of losses on $18.1 million of net revenues. This compares to our modeled $16.2 million of losses and $17.5 million of revenues. This implies BALY will need to meaningfully reduce losses in the back-half of the year to hit their FY target (-$60 million), though management was vocal at Q1 that tech integration has proven the biggest cost – not marketing around peak sports seasonality (a trend demonstrated by peers),” notes Stantial.

That’s notable because rivals such as BetMGM and Caesars are meaningfully paring losses and are flirting with profitability.

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