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Weakness in Bally shares could be long-awaited buying opportunity, analysts say

Publication date: May 11, 2021, 09: 58 h.

Last updated: May 11, 2021, 10: 33 hrs.

Todd Shriber

Bally's (NYSE: BALY), once one of the top gambling instruments, ranks lower in the broader group. This is despite reporting record adjusted first quarter earnings before interest, taxes, depreciation and amortization (EBITDA).

Bally's stock
Atlantic City Bally. Analysts say the stock's weakness may soon ease. (Photo: )

Some analysts are advocating for casino stocks after EBITDA for the first three months of the year came in slightly ahead of the previously published forecast. This was supported as Bally management enthusiastically commented on March and April visitation trends at land-based casinos.

Part of Bally's stock thesis is the company's continued emphasis on the fast-growing online casino and online sports betting sectors. While the operator's efforts on those fronts are well documented, one analyst says they are not adequately reflected in the common price.

The market currently assigns very little valuation impact to BALY Interactive, both relative to other competitors and on an absolute basis. Pro forma for the pending acquisition of Gamesys, we estimate that the market attributes about $ 450 million in value to the U.S. sports and iGaming industry "- said Union Gaming analyst John DeCree in a note to clients today.

It reiterates a "buy" rating on the stock, while lowering its target price to . While this is less than his previous call, DeCree's new forecast suggests an increase of nearly 73 percent since the May 10 close.

Bally shares have the potential for surprises

Estimates for online casinos and sports betting markets are mostly bullish, varying wildly, with Wall Street taking a closer look at total market estimates to answer. That could work in Bally's favor.

"While investors are starting to look at market share estimates for many players BALY may surprise on the upside ", adds DeCree.

Bally's is preparing to launch a mobile sports betting app in Colorado and add at least three more states to that lineup before the end of 2021 . Accounting for pending acquisitions, the company will operate 16 casinos in 11 states - most of which are regulated sports betting. This growing geographic reach should help the operator gain more iGaming and sports betting licenses.

DeCree sees a "significant change in valuation" for Bally's stock when its mobile app goes online.

Remember the margin story

There are plenty of rumors about Bally's online operations, but it shouldn't be lost on investors that the company is delivering impressive margin expansion. That's saying something, as regional operators offer some of the best margin improvements in the gaming industry.

first three months of 2021, Bally's margins rose 35. 4 percent year over year, according to Stifel analyst Jeffrey Stantial.

"At the same store, management noted that their properties are running at about +500 basis points of margin expansion over pre-COVID levels, "the analyst said in a note . "Management sees most of this as sustainable."

He rates Bally shares a "buy", using $ 75 forecast.

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