Century Casinos (NASDAQ:CNTY) stock tumbled on Tuesday after the regional casino operator delivered estimate-lagging fourth-quarter results, but some analysts are defending the shares, saying the pullback could be a buying opportunity.
In a note to clients, B. Riley analyst David Bain reiterates a “buy” rating on Century with a $24 price target. That’s more than double where the stock closed on March 9. His thesis on the gaming equity is simple: The shares are inexpensive and offer significant upside.
We continue to believe CNTY is staged for significant, forward stock multiple expansion offering potential strong share price upside. CNTY trades for 5.0x/4.2x CY23E/CY24E enterprise value/earnings before interest, taxes, depreciation, amortization (EBITDA), a 41 percent/44 percent discount to peers,” said Bain.
The analyst adds the selloff in Century shares may be a case of investors overreacting to the company missing consensus fourth-quarter forecasts. Bain points out some of the estimates included in the aggregate Wall Street outlook were “stale” and didn’t account for disruptions caused by the omicron variant of the coronavirus and related softness in the operator’s Canadian business.
Century Casinos Opportunity Beckons
Last month, Century said it’s paying $195 million for the Nugget Sparks casino and a 50 percent interest in the real estate company that owns the gaming venue, providing the operator with an entry into Nevada. Bain views that move as a benefit for Century investors.
“We would use the share sell-off as a buying opportunity and anticipate consensus estimates to move higher this morning as only a few had incorporated CNTY’s latest acquisition in Reno to forecasts heading into yesterday’s 4Q21 earnings release,” he said.
While Reno lacks the glamour and revenue heft of Las Vegas, that part of Northern Nevada is rapidly growing, supported by an influx of Fortune 500 companies and Californians fleeing that state’s onerous taxes. Broadly speaking, analysts are bullish on casino operators with Reno/Lake Tahoe exposure due to the market’s favorable demographic trends.
When the Nugget Sparks deal closes, Century will run 10 gaming venues in North America, including Canada, Colorado, Missouri, Nevada, and West Virginia. The property transaction is slated to close in the second quarter with the operational deal following a year later.
Reno Adds to Earnings
Companies’ acquisitions are judged by whether those purchases add to the bottom line and it appears Century’s Nugget buy will check that box for investors.
“CNTY should close its 50 percent purchase of the Nugget property next month, immediately resulting in an additional ~$1.9M EBITDA per quarter paid to it in rent until it receives a Nevada gaming license early next year, when it will take over operations of the Nugget, which generated ~$33M CY21A EBITDA,” adds Bain. “We forecast ~$5M of additional EBITDA growth and related acquisition synergies beginning 2Q23.”
Citing a potential rebound in convention business, concerts, $90 million worth of property enhancements, alterations to the gaming floor and improved marketing, among other factors, Century management indicates current forecasts for Nugget benefits could prove conservative.
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