Full stock is cheap, has huge upside potential, says analyst

Posted: April 19, 2022, 7:57 a.m.

Last update: April 19, 2022, 7:57 a.m.

Full House Resorts (NASDAQ:FLL) stock rose more than 5% in early trading on Tuesday after an analyst said the regional casino operator is a catalyst-rich story with double potential.

Full house stock
A rendering of the American Place Casino in Full House, Illinois. An analyst thinks the stock may double. (Picture: ABC7 Chicago)

In a note to clients today, B. Riley analyst David Bain initiates equity coverage of the game with a “buy” rating and a price target of $20, which is higher. double where the shares currently reside. He adds that Full House offers significant earnings before interest, taxes, depreciation and amortization (EBITDA) and that the stock is inexpensive compared to its peers. If Full House’s enterprise value/EBITDA in 2024 matches its peers, the shares could be worth $28, the analyst says.

We expect approximately $150 million in core real estate EBITDA per year (pre-enterprise expense) by CY24E, compared to approximately $50 million for CY22E,” Bain said.

The analyst points out that “significant catalysts for EBITDA growth” could arrive as early as the next five months while waiting for the opening of a temporary casino in Waukegan, Illinois. Followed by the opening of the Chamonix Casino Hotel in Colorado in mid-2023.

Inexpensive Full House Stock Compared to Rivals

It’s often hard to find growth at a reasonable price, but if Bain’s estimates turn out to be right, that’s exactly what Full House offers.

The analyst forecasts 2023 and 2024 EBITDA growth of 119% and 49%, respectively, compared to 9% and 7% for the operator’s peer group. Even with these impressive growth expectations, Full Trades at the lowest multiple against its rivals, says analyst B. Riley.

“Even including project investments before new debt for its permanent casino development in Illinois with no corresponding attributable cash flow, FLL trades at CY24E EV/EBITDA of 4.0x,” Bain adds. “We believe the valuation disconnect could quickly converge given that FLL’s first transformational EBITDA expansion catalyst is expected to begin in just ~5 months.”

The operator is opening American Place in Waukegan and this location could generate 2023 and 2024 EBITDA of $38 million and $50 million, respectively, marking an exceptional return on investment. Bain notes that those predictions could be conservative because the venue will be located in Illinois’ wealthiest county and it will be the closest casino to 1.2 million people.

Management issues

Despite being down 23.62% year-to-date, Full House stock is no stranger to compelling calls from Wall Street. Part of that is attributable to analysts’ affinity for the operator’s management team, including CEO Dan Lee.

“Dan Lee was CFO and Director of Development for MGM Mirage when Stephen Wynn was CEO and was instrumental in the development and success of several iconic offerings including the Bellagio, Treasure Island, the former Monte Carlo and Borgata” , Bath notes.

The analyst points out that Lee went on to lead Pinnacle Entertainment where he oversaw a quadrupling of that company’s EBITDA. Pinnacle was acquired in 2018 by Penn National Gaming for $2.8 billion.

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