Rush Street Interactive (NYSE:RSI) is soaring, ranking as one of Wednesday’s best-performing gaming stocks on the back of an analyst upgrade.
In midday trading, shares of the online sportsbook operator are up 9.5%. In a note to clients today, Wells Fargo analyst Daniel Politzer lifts his rating on Rush Street to “overweight” from “equal weight,” with a $10 price target. While that new price projection is down from $11, it still implies upside of almost 66% from the April 26 close.
Now, with shares down 63% YTD and sentiment vacillating between negative and apathetic, we believe RSI’s risk/reward skews favorably,” writes Politzer.
RSI operates under the BetRivers and PlaySugarHouse brands, and is currently available with either mobile or retail businesses in Colorado, Illinois, Indiana, Iowa, Michigan, New Jersey, New York, Pennsylvania, Virginia, and West Virginia.
Following a minority investment in mobile games developer Boom Entertainment, which was announced in August, RSI gained access to Louisiana, Mississippi, and New Mexico.
Near-Term Catalysts for RSI Stock
While analysts and investors remain concerned about the spending required to adequately compete in the US sports wagering arena, RSI may be able to allay those concerns, at least temporarily.
With no football on the US sports calendar for another several months, and with the NBA season nearing its conclusion, sportsbook operators are entering a seasonally slow period for promotional spending, observes Politizer. RSI can offset some of the seasonal slowdown in sports wagering by way of its dominant perch in higher margin online casinos.
The Wells Fargo analyst adds RSI has the potential to set itself apart from rivals by way of a disciplined approach to capital expenditures, adding that the operator has a “realistic” path to profitability. It wrote that its earnings before interest, taxes, depreciation and amortization (EBITDA) losses are unlikely to worsen from current levels.
That’s pivotal at a time when the investment community is weary of money-losing online sportsbook operators with limited visibility as to when profitability will arrive.
Another RSI Stock Perk
Simply because a stock dramatically declines, as RSI has, that doesn’t mean it’s a value idea. However, RSI may be offering value relative to some of its downtrodden competitors..
Politzer notes RSI stock trades at 1.7X the 2023 sales estimate, while rival DraftKings (NASDAQ:DKNG) sports a multiple of 2.7x. The analyst’s $10 price target implies a 2023 enterprise value/sales forecast of 2.75x.
Rush Street Interactive is also active in markets outside the US, including Canada, Colombia, and Mexico — the latter two of which give operator more geographic diversity than many rivals.
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