Analysts say Century Casino sell-off is overblown, free cash flow attractive
Shares of Century Casinos (NASDAQ: CNTY ) joined broader gaming stocks in a bearish trend on Wednesday as a higher-than-expected March consumer price index (CPI) reading pointed to more persistent inflation and a better-than-expected outcome. Economists' predictions had hoped.
This bit about the economic data belies some positive news about the century. In a new note to clients today, Macquarie analyst Chad Beynon upgraded Regional Casino shares to "outperform" from "neutral" while maintaining a $5 price target. That’s an increase of nearly 53% from today’s closing price of $3.27.
Beynon said the sell-off in the stock, which has fallen 32% since the end of last year while the Russell 2000 index has gained 2% in the same period, was overblown.
Over the past 18 months, OpCos has fallen 1.3x to 5.4 (OpCos is down about 30%), while WholeCo's P/E ratio remains unchanged at 8.9x (WholeCos is up 30%). Meanwhile, CNTY shares fell from 4.8 to 3.6 (a 50% share price drop) and is the cheapest OpCo in our coverage (versus the S&P 500 +38% and Russell 2K +17%), Beynon wrote.
Because Century does not own all of the real estate on which its gaming venues are located, it is considered an operating company (OpCo).
The rise of Century Casino had many catalysts
With the stock struggling right now, the growing belief that "Century is a 2025 story" suggests investors may have to be patient with this name.
That patience may pay off, Beynon said, as the operator will post earnings before interest, tax, depreciation, and amortization (EBITDA) of $168 million next year on revenue of $700 million. That increases the likelihood that the operator will earn 85 cents in free cash flow per share -- an impressive figure for a company with a market capitalization of $101 million and a share price of $3.27.
Beynon sees Century's two casinos in Missouri and casinos in Maryland and Reno as potential catalysts for the stock price.
"Several near-term catalysts, including the opening of The Riverview (April 4), relicensing in Poland (current EBITDA of approximately $6 million, previously approximately $12 million) and completion of Caruthersville (Q4 2024). "In addition, we are now marking the anniversaries of the Rocky Gap (July 2023) and Nugget (April 2023) acquisitions, which provide initial insights," the analyst noted.
Century Casino Demonstrates Growth and Value Characteristics
Century's leverage was 4.9x at the end of last year, but is expected to increase to 5,000x by the end of this year, a 6x increase from last year, as the operator Missouri plans and works to expand in the Nugget and Rocky Gap regions. However, leverage could fall to 4.8x, "the largest one-year deleveraging in our reporting," Beynon noted.
Deleveraging could boost investor confidence, as could solid execution at Maryland and Reno properties, which are seen as integral to the stock's long-term thesis.
“CNTY is a unique value/growth story with two renovation projects that we believe will deliver returns in the mid-teens of $82 million. Additionally, the acquisitions of Nugget and Rocky Gap are expected to further boost medium-term growth. "
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Source: www.casino.org
