Shares of Flutter Entertainment (NYSE: FLUT) closed higher by 1% today after an analyst said the stock has the potential to more than double to $600 over the next four years. The gaming equity closed at $277.47 today.

In a report to clients, Macquarie analyst Chad Beynon initiated coverage of the FanDuel parent with an “outperform” rating and a $340 price target, implying upside of 22.8% from today’s close. He noted Flutter meets the “elusive” standard for the software rule of 40, but investors treat the name as a gaming stock, not a software equity.

FLUT is a rare large-cap stock in the gaming and leisure sector that meets software’s elusive Rule of 40, yet does not trade like one,” wrote Beynon. “Based on Flutter’s current/pending assets, we see a clear line of path for six-year (2024E-30E) revenue/earnings before interest, taxes, depreciation, and amortization (EBITDA) compound annual growth rates (CAGRs) of +12%/21%, fueled by an unrivaled SAM (serviceable addressable market) with a +10% CAGR to $210bn by 2030 and market share gains. If this path is executed on, our calculations show a potential ~$600 share price in a four-year time frame.”

In the software industry, the rule of 40 stipulates that a software-as-a-service (SaaS) purveyor should have a combined revenue growth and profit margin rate of 40%. SaaS is widely applicable to many cloud computing companies.

Flutter Stock Has Wide Moat Credentials

Beynon added Flutter fits the bill as a wide moat stock, meaning it has advantages such as enviable brand recognition and robust intellectual property (IP) that some competitors cannot match.

“FLUT benefits from a deep moat (i.e., unique IP, high switching costs, brand loyalty), creating significant barriers to entry. The potential for inorganic growth through strategic mergers and acquisitions and partnerships offer upside not in our forecast,” observed the analyst . “Thus, we believe FLUT is undervalued relative to its intrinsic worth, future growth prospects, and S&P 500 peers.”

While FanDuel has plenty of competitors, it typically ranks at or the near top of various bettor surveys regarding technology and scores well in terms of brand loyalty, indicating clients are “sticky” and those that leave often return. FanDuel’s moat is cemented in part by its breadth and technological leadership in same-game parlays, which are popular among bettors and highly profitable for operators.

Flutter Acquisitions Could Boost Stock

US investors often view Flutter through the lens of FanDuel, but the reality is the company owns a slew of other brands that have leading share in other markets, including Australia and Europe.

Dublin-based Flutter reached that dominant perch through an ongoing series of smart acquisitions and while the company frequently makes deal-making headlines, investors may not be giving the shares adequate credit for those purchases.

“Since 2019, FLUT shares have seen a 23% CAGR (vs S&P 500 +16%), attributable to its major leading positions in current (US, UK/Ireland, Australia) and pending (Italy, Brazil) markets, achieved by its proven and replicable M&A strategy (‘Flutter Edge’),” concludes Beynon. “We estimate nine acquisitions since 2019 have created ~$200 of incremental per share value for investors with a long runway from secular trends of digitization and legalization.”

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