Posted on: March 7, 2022, 10:38h.
Last updated on: March 7, 2022, 10:49h.
Century Casinos (NASDAQ:CNTY) delivers fourth-quarter results tomorrow, and ahead of that report, an analyst is waxing bullish on the small-cap regional casino operator.
In a note to clients, Stifel analyst Jeffrey Stantial reiterates a “buy” rating on Century, while boosting his price target to $24 from $19, implying the stock can more than double from the March 4 close. He says the shares are cheap — a status that is unwarranted.
CNTY continues to screen incredibly cheap relative to regional peers,” notes Stantial. “We have long felt CNTY’s discount is unwarranted, with increasing U.S. exposure (alongside a likely forthcoming Poland sale) likely helping close the gap to traditional regional operator multiples.”
The Colorado-based company reports fourth-quarter results prior to the open of US markets on Tuesday. Analysts are calling for earnings per share of 16 cents on revenue of $103.88 million, which would mark a 22.5% year-over-year increase.
Lauding Nugget Sparks Acquisition
Last month, Century announced it’s acquiring Nugget Sparks casino and a 50 percent interest in the real estate company that owns the property for $195 million, marking the operator’s initial move into Nevada.
Century is drawing praise for the deal, which is slated to close in the second quarter, because it will be immediately accretive to earnings and will bolster free cash flow. Additionally, the Reno-Lake Tahoe area is rapidly growing, thanks in large part to an influx of folks from Northern California seeking a lower cost of living.
“We have seen increasing interest in the name since the deal announcement, given favorable investor views on the Reno market, FCF accretion, and synergy opportunity,” adds Stantial.
Reno is attracting companies, such as Amazon, Alphabet, Apple and Tesla, contributing to an unemployment rate below three percent — far below Nevada and national averages. Based on Century’s free cash flow yield, the Nugget buy could add $2 a share in incremental value to Century’s stock price, according to Stantial.
Century Casinos Thesis Getting Cleaner
Following the recent sale of the real estate assets of its namesake Calgary gaming venue and other previous and pending transactions, Century will generate nearly three-quarters of its earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) from its US casinos.
Stantial adds that cleans up the investment thesis. That’s relevant at a time when Canadian casinos only recently shed some coronavirus mandates, and as Century continues moving toward a sale of its two-thirds stake in Casinos Poland, which could generate cash for more domestic deal-making.
“Meanwhile, the company remains engaged in discussions to monetize their Poland assets, which we expect will further improve the story given the negative perceptions towards the operations (volatile licensing framework, 50% gaming tax rate, marketing restrictions, limited channel checks, etc.),” concludes Stantial.