Monday, December 5, 2022

Full House Could Be Next Big Regional Gaming Story, Says Analyst

Full House Resorts (NASDAQ:FLL) stock could be the next hit among regional gaming equities and the shares offer significant upside potential, says an analyst.

In a note to clients today, Roth Capital analyst Edward Engel restarts coverage of the Silver Slipper operator with a “buy” rating and a $16 price target, implying upside of 65.1 percent from the Nov. 26 close. The shares are up 1.75 percent in early trading on Engel’s call.


FLL is transitioning from a micro-cap gaming stock to a national operator of scale,” said the analyst. “Similar to gaming stocks making this transition last decade, we expect FLL’s valuation to expand as its earnings before interest, taxes, depreciation and amortization (EBITDA) doubles, and potentially triples over the next three to four years.”


In addition to Bronco Billy’s in Cripple Creek, Colo. and the Silver Slipper in Mississippi, Full House runs a pair of gaming properties in Nevada and one in Indiana. The company is also in the process of completeing Charmonix Casino Hotel, which will be located adjacent to Bronco Billy’s.


Colorado, Illinois ‘Transformational’ Opportunities for Full House

Roth’s Engel says the Charmonix project, which is a higher end venue than Bronco Billy’s and is expected to open in early 2023, along with Full House’s pursuit of an integrated resort in Waukegan, Ill. could be major catalysts for the shares down the road.


The analyst’s $16 price target includes $4 a share attributable to the Colorado expansion and $3.50 assuming the operator wins the Waukegan license. He notes Charmonix could drive 20 percent-plus return on investment as the venue could lure a higher end clientele that indulges in longer overnight stays and spends more cash. Engel also notes the addition of a classier venue in Cripple Creek could boost table game yields, bridging the gap with Black Hawk — Colorado’s other gaming town.


In Illinois, the Waukegan project could be “transformational” for Full House, says Engel.


“We believe this opportunity offers 15 percent-plus return on investment, where the project is outside of Chicago and in suburbs with low gaming penetration,” notes the analyst. “Full House is spending $300 million to $400 million here, which we believe offers an EBITDA opportunity of $55 million.”


He says Illinois regulators should make a decision on the Waukegan winner in January. The analyst is assigning $2 a share to Full House’s share price due to Illinois, which implies 60 percent probability the operator is chose to run the Waukegan venue. Assuming that happens, the per share value of that event grows to $3.50.


Bold Comparisons

Engel says Full House is the next regional gaming operator of scale, following in the footsteps of the likes of Bally’s (NYSE:BALY), Golden Entertainment (NASDAQ:GDEN) and Eldorado Resorts, which is now Caesars Entertainment (NASDAQ:CZR).


Those companies and others saw EBTIDA multiples double and triple after EBITDA topped the $100 million mark.


“By achieving scale, we believe Full House will exit this development cycle as a higher quality business, with a lower cost of capital and greater flexibility to pursue transformational developments and mergers and acquisitions opportunities,” concludes Engel.


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