The swing factor for Golden Entertainment shares in 2025 relates to a strategic change in the structure of the operations, according to Deutsche Bank in issuing a Buy rating for the stock.
As discussed in Deutsche Bank’s research over the course of 2024, a sale of the real estate at current levels likely drives greater than 20% potential upside in the stock. The base case math implies an equity valuation of $40. The stock has been trading just above $30 and Deutsche Bank has a price target of $36.
“While demand from gaming oriented REITs around the Las Vegas market remains considerable, equity and rate markets have made transacting difficult,” analyst Carlo Santarelli said. “Should this change, we believe Golden would be open to a real estate sale in conjunction with something further and strategic in nature related to the remaining OpCo. In the absence of a real estate transaction, we believe something is likely to give in 2025, as the current structure of Golden is hard to rationalize, given the lack of growth in the portfolio, shrinking public float, and elevated corporate expense relative to the portfolio EBITDA.”
After a tough 2024 in which the Nevada casino segment is likely to experience a double-digit decline in EBITDA, the key to 2025 is likely to be the stabilization of the STRAT, Santarelli said.
While the Super Bowl will serve as a modest headwind in the first quarter, with $1 million of Las Vegas impact for Golden, STRAT should be poised to benefit from an improved marketing effort and more robust programming at Atomic Golf, the capital deployed to room renovations, easy comparisons, and improved midweek occupancies.
“We believe any signs of stability at the property in 2025 would serve as a positive catalyst for shares at current levels,” Santarelli said.
At current levels, Santarelli expect Goldens to buy back roughly 9% of the market cap in 2024, and with limited avenues for growth capital spend in the current outlook, they expect the buyback agenda to continue and likely accelerate into 2025.
Golden targets net leverage of below three times and Santarelli estimates, based on their 2025 forecasts, that Golden could hypothetically return $140 million to shareholders (14% of the current market cap) through repurchases and remain within the sub three times net leverage framework.
“We believe the capital-return story, while it hasn’t proven fruitful for peers, could be unique here, given the smaller float and the strategic alternative perceptions of GDEN,” Santarelli said.
The $36 price target is based on a SOTP approach in which Deutsche Bank applies segment-level multiples, that Santarelli called consistent with historical market multiples and asset sales to 2025 property-level cash flow.
