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Golden Entertainment (NASDAQ: GDEN) is trailing other operators with exposure to Las Vegas residents, down roughly 7% so far this year, but at least one analyst thinks the stock has potential.
Texas Capital analyst David Bain gave the Strat operator a "buy" rating and a price target of $39 in a note to clients Monday, suggesting a 32.4% increase from the current share price. He stated the stock is undervalued, particularly when considering for the operator’s free cash flow (FCF)-generating potential.
"Sometimes, ‘boring’ is not bad, in our view, particularly when it includes near peer-low net leverage, unlocked property value, highly visible FCF generation, potentially accelerating share repurchases and a 3.4% dividend yield,” observes Bain.
Golden has been aggressively pursuing shareholder incentives in recent years. In March 2024, it established a quarterly dividend and drastically reduced the number of outstanding shares through repurchases. These actions highlight how strong the operator's balance sheet is.
The outlook of Las Vegas residents could help Golden Stock
Although not physically situated on the Las Vegas Strip, Golden's flagship property, The Strat, is close by and influenced by developments in the US gaming industry.
These trends are now unfavorable since operators' second- and third-quarter earnings are expected to be negatively impacted by decreased visitor numbers. Although the Strat "has particular difficulty outperforming during mid-tier Strip rate compression periods," Bain conceded that there may be cause for optimism with Golden stock because of the company's exposure to Las Vegas locals.
“We believe GDEN’s Las Vegas Locals division remains strong, and while GDEN’s hyper local tavern business continues at lower than historical margins as it refines newly acquired locations to its best practices, underlying trends are stable ahead of Social Security and ‘no tax on tips’ benefits,” notes Bain.
That argument has merit because Boyd Gaming (NYSE: BYD) emphasized the strength in its Las Vegas locals division in its second-quarter results last week. Other operators, like Golden, may also experience theme matriculation.
Golden Entertainment's Stock May Win in the Long Run
Golden Entertainment's stock has been a bit of a battleground lately. While some analysts have expressed optimism about the company, highlighting its attractive valuation, others on the sell-side have pointed out that it has too much exposure to Las Vegas and that the likelihood of mergers and acquisitions is declining.
Although the majority of Golden's profits and income come from Las Vegas, some investors might not be completely aware that the company has gambling taverns spread throughout Nevada and is the leading operator in Laughlin and Pahrump. All things considered, Golden's exposure to Nevada might be a long-term asset.
“We believe GDEN’s Nevada-centric, Strip and Locals segmented portfolio captures greater long-term growth potential than geographically-disperse regional peers,” concludes Bain. “Further, GDEN’s low leverage, visible cash flow, and real estate holdings offer transformative stock upside optionality.”
