Bally’s Buyable on Pullback as Plenty of Catalysts Remain, Says Analyst

Posted on: April 19, 2021, 12:58h. 

Last updated on: June 30, 2021, 10:30h.

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

Bally’s Corp. (NYSE:BALY) stock is joining other gaming names in what is now a protracted slump, as the casino operator shed 4.73 percent last week and is off 18.50 percent over the past month.

Bally's stock
Bally’s Atlantic City. KeyBanc sees reasons to like the operator’s stock. (Image: Bloomberg)

Some analysts believe this the pullback late-arriving investors have been waiting for in the previously high-flying name. Count KeyBanc Capital Markets analyst Brett Andress is among those on the sell side forecasting upside for Bally’s stock, even against the backdrop of the recent slump.

In a note to clients today, Andress reiterates an “overweight” rating on Bally’s, with a $70 price target. That implies upside of 18.6 percent from the April 16 close and comes as the shares reside almost 22 percent below the 52-week high. Declines of 20 percent or more from recent highs signal bear markets.

Last week, Bally’s forecast first-quarter revenue that topped Wall Street estimates. But that got lost in the shuffle amid a flurry of activity, including a $650 capital raise, wrapping up the Gamesys acquisition — its largest to date — and the purchase of the Tropicana Las Vegas.

Still Bullish on Bally’s Stock

Andress argues market participants may have focused too much on other goings-on last week, and that Bally’s may not be receiving adequate credit for its first-quarter forecast.

The KeyBanc analyst says the Bally’s outlook highlights the operator’s strong margin management and the quickening pace of recovery at regional gaming venues. Bally’s executives noted momentum built in March is carrying into this month, as older gamblers get coronavirus vaccines and display eagerness to return to local casinos.

Looking ahead, we see a favorable risk/reward at current levels (land-based and Gamesys imply little credit to online sports betting/iGaming potential at current levels); however, with the majority of the puzzle pieces now in place, we believe investor focus is rightfully shifting to execution,” writes Andress.

The KeyBanc analyst lifts his 2021 earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) estimate on Bally’s to $256 million, and his 2022 forecast to $343 million, citing the operator’s recent spate of dealmaking.

Time to Deliver the Goods

For some time, Bally’s has been one of the most acquisitive companies in the gaming industry. The company’s purchases span land-based casinos to online gaming entities to technology companies – all in the name of vertical integration.

Wall Street is broadly supportive of the buying spree. But as KeyBanc’s Andress notes, the time is coming for Bally’s to show that the acquisition activity is paying off. He says the Bet.Works buy and the launch of a mobile app for sports wagering — slated for later this year — are “the next key proof points” for Bally’s.

Last November, the company paid $125 million for Bet.Works, a provider of sports betting platforms. That purchase is pivotal to Bally’s efforts to bring online sports betting technology in-house, which should increase margins and lower costs.