Century Casinos is a cheap stock with big reward potential

Posted: March 10, 2022, 10:00 a.m.

Last update: March 10, 2022, 10:21 a.m.

Century Casinos Inc (NASDAQ:CNTY) stock fell on Tuesday after the regional casino operator reported fourth quarter results that fell behind estimates. But some analysts are defending the stock, saying the pullback could be a buying opportunity.

Casinos of the century
The Nugget Casino gaming room in Reno. The purchase of this site is a catalyst for Century Casinos, says an analyst. (Picture: Nugget Casino)

In a note to clients, B. Riley analyst David Bain reiterates a “buy” rating on Century, with a price target of $24. This is more than double what the stock closed on March 9. His thesis on fair play is simple: stocks are inexpensive and offer a significant advantage.

We continue to believe that CNTY is staged for a significant expansion in forward equity multiples offering the potential for a strong upside in the stock price. CNTY is trading for an enterprise value of 5.0x/4.2x CY23E/CY24E/earnings before interest, taxes, depreciation, amortization (EBITDA), a 41%/44% discount to peers,” Bath said.

The analyst adds that the selloff in Century shares could be due to investors overreacting to the company’s lack of consensus guidance for the fourth quarter. Bain points out that some of the estimates included in Wall Street’s overall outlook were “stale” and did not take into account the disruption caused by the omicron variant of the coronavirus and related weakness in the operator’s Canadian business.

Century Casinos Opportunity Beckons

Last month, Century said it was paying $195 million for the Nugget Sparks casino and a 50% stake in the real estate company that owns the gambling site. This provides the trader with entry into Nevada. Bain views the move as a benefit to Century investors.

“We would use the stock sale as a buying opportunity and expect consensus estimates to rise this morning as only a few had included CNTY’s latest Reno acquisition in the forecast prior to the release of 4Q21 earnings. yesterday,” he said.

While Reno lacks the glamor and revenue of Las Vegas, this part of northern Nevada is growing rapidly. It is supported by an influx of Fortune 500 companies and Californians fleeing that state’s onerous taxes. In general, analysts are bullish on casino operators exposed to Reno/Lake Tahoe due to favorable market demographics.

When the Nugget Sparks deal closes, Century will operate 10 arcades in North America, including Canada, Colorado, Missouri, Nevada and West Virginia. The real estate transaction is expected to close in the second quarter, with the operational transaction following a year later.

Reno adds to profits

Business acquisitions are judged by the contribution of those purchases to the bottom line, and it looks like buying Century’s Nugget will tick that box for investors.

“CNTY is expected to close its 50% purchase of the Nugget property next month, which will immediately result in incremental EBITDA of approximately $1.9 million per quarter paid to it in rent until it receives a Nevada gaming license early next year, when it will take over operations of the Nugget, which generated approximately $33 million in CY21A EBITDA,” Bain adds. “We expect further EBITDA growth of approximately $5 million and associated acquisition synergies beginning in 2Q23.”

Citing a potential rebound in convention business, concerts, $90 million worth of property upgrades, game room changes and improved marketing, among other factors, Century management says the Current predictions about Nugget’s benefits may turn out to be conservative.