Golden Nugget Online Stock Soars as Analyst Sees Double Potential

Posted on: April 6, 2021, 09:03h. 

Last updated on: July 19, 2021, 01:01h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Golden Nugget Online Gaming (NASDAQ:GNOG) stock is soaring Tuesday after a Wall Street analyst said the shares could double.

GNOG stock
Tilman Fertitta seen at the White House in 2020. His Golden Nugget Online Gaming could see its share price double. (Image: Fox Business)

In midday trading, the online casino operator is higher by 13.70 percent — easily enough to make it one of the best-performing gaming equities today. Jefferies analyst David Katz initiating coverage of GNOG with a “buy” is the spark behind the rally. The analyst tags the iGamng firm with a $28 price target — more than double where the stock closed on April 5.

The magnitude and productivity prospects of the iGaming market have not been fully appreciated by the Street, in our view, and GNOG’s positioning and product strength have been proven in New Jersey,” writes Katz in a note to clients.

GNOG, which is controlled by Tilman Fertitta, went public last December following a merger with a special purpose acquisition company (SPAC) co-owned by the billionaire businessman Jefferies. GNOG stock is off 30 percent year-to-date, joining a slew of other companies that came to market through blank-check transactions to the downside.

Even with those struggles, analysts are mostly bullish on the name, as highlighted by a consensus price forecast of $24. The $28 projection offered up by Jefferies’ Katz is one of the highest GNOG calls on the street.

For GNOG Stock, Patience Required

As is the case with so many emerging growth industries, iGaming is a long-term idea – one that demands investors exercise patience. Katz points out as much in relation to GNOG stock.

“GNOG and digital gaming — iGaming, specifically — require long-term vision in general. We believe GNOG’s performance through 2020 provides a framework for low double-digit iGaming market share, profitability, and 100-plus percent potential upside,” said the analyst.

With more states turning to online casinos and sports wagering to bolster revenue, it’s not hard to find bull calls from Wall Street analysts. For example, Goldman Sachs recently said it believes internet gaming will be a $14 billion industry in 2033, up from $1.5 billion today.

Part of the investment community’s enthusiasm for internet gambling and online sports betting is margins. Those web-based businesses use less staff and don’t need to invest in large, costly, brick-and-mortar buildings. In fact, Katz sees a better long-term opportunity with iGaming margins than with sports betting — a trait that bodes well for Golden Nugget Online.

Getting to $28

Obviously, it takes a lot for any stock to double. But GNOG has some favorable fundamentals, including an impressive market share in the marquee New Jersey market and a strong start in Michigan.

Those factors and others indicate a run to $28 for GNOG stock isn’t out of the realm of possibility.

Katz’s forecast is based on “1) enterprise value/2023 estimated revenue of 8.25X is appropriate given leaders in US digital gaming 12X+, 2) Legalized total addressable market of $19 billion/eight percent to 10 percent market share/30 percent margin/13.5X earnings before interest, taxes, depreciation and amortization (EBITDA)/12 percent weighted average cost of capital (WACC), which results in $30, 3) Multi-stage DCF to 2033, which yields a value of $26, which comprises a total blended valuation of $28.”