Off nearly 10% over the past week and 23.79% year to date, Bally’s (NYSE: BALY) stock is mired in a lengthy slump.
The year-to-date loss makes Bally’s one of the worst-performing casino operators since the start of 2023, and the stock’s recent weakness against the backdrop of Rhode Island — its home state — legalizing online casinos is confounding and perplexing investors.
In a recent note to clients, Stifel analyst Jeffrey Stantial reiterated a “hold” rating on Bally’s with a price target of $17, implying upside of 13.33% from the June 16 close. Stifel points out that Rhode Island’s decision to legalize iGaming essentially grants Bally’s a monopoly that could be worth at least $20 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
For BALY specifically, we estimate the iCasino opportunity in RI, as structured in the legislation, could imply $10-43M (~$21M base case) in incremental adj EBITDA, with likely minimal required capital outlay,” wrote the analyst.
Last week, Bally’s won approval for a temporary casino in Chicago and formal approval for its $1.7 billion integrated resort in that city.
Bally’s Stock Not Getting Rhode Island iGaming Love
With Rhode Island on pace to become just the sixth state to allow iGaming, a case can be made more upside should have been assigned to Bally’s stock on that news.
As Stantial pointed out, Stifel’s base case for Rhode Island internet casinos is that $3 per share will be, over time, added to Bally’s shares with the possibility existing that figure could be as high as $5.
“Nonetheless, the bill, as structured, appears to “gift” BALY a material growth driver, seemingly not reflected in recent performance with shares -4% on Friday and -6% since the RI Senate first passed their respective bill,” Stivel added. “This suggests to us a potential tactical near-term trade opportunity, as more details surface in the coming days.”
While sports wagering is live and legal in far more states, and garners much more media attention than internet casinos, the reality is the latter provides operators with superior margins, lower overhead, and better long-term growth outlook than sports betting. Said another way, Stantial could be right that Bally’s stock deserves more adulation on the back of the Rhode Island news.
Don’t Sleep on Bally’s Rhode Island Benefits
Entering 2023, analysts expected a small number of sparsely populated states to join the legal sports wagering fray, and nothing on the iGaming legalization front, confirming that Rhode Island is indeed a pleasant surprise and that the related headline should probably have had a more positive impact on Bally’s stock.
Gambling expansion tends to come in waves given the political narrative around cross-border tax revenue cannibalization, and hence we view any momentum favorably even if relatively small in scale,” concluded Stantial.
Bally’s currently operates land-based casinos in nine states. Of that group, Illinois would be the golden goose when it comes to iGaming, but a related legislative effort there recently failed.
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