Codere Online Has Massive Upside Potential, Says Analyst

Posted on: January 4, 2022, 09:53h. 

Last updated on: January 4, 2022, 10:33h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Internet casino and online sports wagering firm Codere Online (NASDAQ:CDRO) is coming off its best day as a standalone publicly traded company, and is catching the attention of at least one analyst.

Codere Online
Codere Online, highlighted at the Nasdaq market site last month. An analyst believes the stock offers significant upside potential. (Image: Twitter)

While sell-side coverage of the gaming name remains sparse in the wake of its Dec. 1 separation from a special purpose acquisition company (SPAC), Codere Online has a fan in Stifel analyst Jeffrey Stantial. He initiates coverage of the stock with a “buy” rating and a $10 price target. That implies upside of about 43 percent from the Jan. 3 close.

Codere Online, founded in 2014, is a unit of Codere Group — the only listed Spanish company in the gaming industry. The online operator is the first internet gaming entity from Latin America to publicly trade in the US, and it’s that focus on that region that may prompt some investors to overlook the stock.

We believe CDRO appears well-positioned to capitalize on secular growth trends in the lesser-known, but also high-growth Latin American online gambling market, benefiting from deep local operating expertise and an omni-channel presence,” said Stantial.

Last month, the operator announced a five-year agreement to offer sports wagering in Argentina, where it also sponsors the River Plate football club. In that country, Codere is offering bets on a variety of local and national sporting events, as well as international competitions.

Codere Comparisons Inevitable, But Dig Deeper

Codere Online is a pure play iGaming and sports wagering operator – a status assigned to some once-beloved, now-flailing US-based companies, including several that came public by way of blank-check transactions.

However, investors should be careful in drawing comparisons between Codere and the likes of DraftKings (NASDAQ:DKNG) or Rush Street Interactive (NYSE:RSI), as just two examples. Codere’s core markets are Buenos Aires, Colombia, Italy, Mexico, Panama and Spain — all destinations that don’t require the marketing spend needed to compete in the US. Italy and Spain, the Eurozone’s third- and fourth-largest economies, respectively, are mature wagering markets.

Stantial says comparisons to other pure play stocks in this arena could be leading to suppressed multiples for Codere Online.

“Meanwhile, shares are trading well below most pure-play peers, which we believe is partially factor driven and discounts CDRO’s growth potential and favorable competitive positioning,” notes the analyst.

He adds that as more market participants become familiar with the operator’s story, the shares could “rerate” back to $10, which is intended to be the floor for SPAC share prices.

Codere Online Appears Catalyst-Rich

Likely owing to home country bias, many US investors aren’t aware of the wagering opportunity set in Latin America. But online gaming there notched an eight-year compound annual growth rate of about 20 percent in Codere’s core markets.

Additionally, Codere already being operational in the region is a plus, because market observers expect governments there will be tight in terms of doling out gaming permits, potentially giving Codere a competitive edge.

Stifel’s Stantial highlights other catalysts, including “current valuation discounts CDRO’s growth potential and favorable competitive positioning, with shares trading below most US and European pure-play peers, and the under-targeted US Hispanic population presents a medium-term expansion opportunity not factored in our forecast.”