Amid what could be a robust slot machine replacement cycle, the 2022 prospects for gaming supplier equities, namely Everi Holdings (NYSE:EVRI) and PlayAGS (NYSE:AGS), appear strong in the eyes of at least one analyst.
In a note to clients today, B. Riley analyst David Bain reiterates “buy” ratings on both stocks, while offering price targets that are well in excess of where both names currently reside and far above Wall Street consensus.
Bain, who’s been bullish on both names for some time, has a $40 price target on Everi — well above the average price forecast of $32.88. The stock currently trades just over $21. His $21 estimate on PlayAGS is 50 percent above consensus and implies the shares can more than triple from current levels. With casino operators looking to keep margins high, turning to machines over table games is a practical move.
We forecast over 15,000 more slot replacement units will be sold in CY22E versus CY21E, equating to ~$255 million in revenue and $107 million in earnings before interest, taxes, depreciation and amortization (EBITDA),” said Bain.
The analyst adds the buying already commenced and in a favorable environment for gaming suppliers, Everi and PlayAGS possess standout potential in 2022.
Good News for Everi, PlayAGS
Integrated resorts have multiple revenue streams, including food and beverage, entertainment, guest rooms, and other amenities to go along with gaming. However, in the wake of the coronavirus pandemic, operators are focusing on the casino floor, and that’s a potential plus for Everi and PlayAGS.
“Based on conversations with casino operators, we believe there is recognition of a gaming floor-led COVID rebound versus non-gaming amenities,” adds Bain. “We further gauge less than average capex toward new hotel towers/steak restaurants this year, and more interest in optimizing what is working – gaming technologies on the gaming floor.”
The analyst adds channel checks indicate more of casino operators’ gaming budgets are being directed to machines, and new openings and venue expansions could drive purchases of ~7,000 more gaming devices than were bought last year.
Bain notes that operators’ focus on technology could bode well for increased adoption of Everi’s cashless gaming platform. Everi already controls about 70 percent of the fintech market at North American casinos. That’s a share that could expand, as more gaming operators move to cashless wagering systems to minimize contact between dealers and players’ money.
Stocks Are Inexpensive
Looking at the stocks, Bain sees Everi and PlayAGS as deeply discounted relative to peers. In the case of Everi, the discounts are 27 percent and 28 percent, respectively, based on 2022 and 2023 estimated enterprise value to EBITDA (EV/EBITDA).
For AGS, Bain sees “peer low” valuation, noting the stock trades at 44 percent and 46 percent discounts to rivals, based on forecast 2022 and 2023 EV/EBITDA.
Both companies are poised to top fourth-quarter EBITDA estimates — AGS is on a seven-quarter streak of doing so. Specific to AGS, Bain forecasts a fourth-quarter gaming win per unit of 11 percent relative to the same period in 2019, which he acknowledges could prove conservative. Everi has its own catalysts.
“EVRI was the only domestic-listed casino supplier with higher 3Q21 game sales than 3Q19,” said the analyst. “It also continues to lead domestic suppliers in gaming operations daily win per unit growth and unit placements, now for multiple consecutive quarters.”
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