Golden Entertainment Gushes Cash Flow

Posted on: February 20, 2022, 02:32h. 

Last updated on: February 20, 2022, 04:57h.

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

Last week, Golden Entertainment (NASDAQ:GDEN) reported consensus-beating fourth-quarter revenue. But some analysts believe the real story for the Strat operator is a burgeoning free cash flow (FCF) story that could prompt elevated shareholder rewards.

Golden Entertainment
Golden Entertainment’s Arizona Charlies casino in Las Vegas. An analyst likes the operator’s cash flow prospects. (Image: Las Vegas Review-Journal)

On its current free cash flow trajectory, it’s possible Golden will generate approximately $200 million in cash this year — more than 10% of its market capitalization of $1.65 billion — for share repurchases. In the final three months of 2021, the casino operator bought back $10.6 million of its stock. Analysts are encouraged by Golden’s cash flow proposition, which is enhanced by the fact the operator has no new project risk — factors that could serve as platforms for elevated shareholder rewards.

Net leverage is ~2.8x with a $15M per annum from a NT refinancing to couple with continued FCF from operations. We believe, post-refinancing, GDEN will accelerate buybacks (currently ~$40M remaining on its authorization) and look acutely at dividend issuances,” said B. Riley analyst David Bain in a note to clients.

He rates Golden a “buy” with a $75 price target, implying upside of roughly 44 percent from the Feb. 18 close. Las Vegas-based Golden operates 10 casinos, nine of which are in Southern Nevada, including the Strat.

Golden Right Gaming Name for Current Climate

At a time when financial markets are making clear that profitable companies with strong balance sheets are in style, Golden could emerge as one of the preferred gaming equities.

That thesis could be bolstered by rising interest rates and still persistent inflation — factors that typically weigh on companies with poor visibility and flimsy financials. Those are not attributes that accurately describe Golden Entertainment.

“Visible, growing cash flow primarily generated from wholly-owned gaming assets in Nevada which capture Strip, locals, and hyper-local upside from an ongoing, positive market dynamic and an intense management focus on FCF for an accelerated return of capital to shareholders,” adds Bain. “Overall, we believe the GDEN thesis matches today’s equity sentiment seeking lower-risk, visible cash flow growth.”

Golden’s Nevada casino-resorts are the Strat, Aquarius Casino Resort and Edgewater Hotel & Casino Resort, and the still-closed Colorado Belle. Its venues that cater to locals are Arizona Charlie’s Boulder, Arizona Charlie’s Decatur, Gold Town Casino, Lakeside Casino & RV Park, and Pahrump Nugget Hotel Casino.

Nevada Catalysts

In the wake of the coronavirus pandemic, the Strat and Golden’s Laughlin venues aren’t all the way back to revenue levels seen in 2019. That indicates that as things get back to normal in Nevada, the company potentially has positive catalysts ahead.

“As conventions return and create a spill-over impact to the STRAT, we calculate $15M to $20M of increased STRAT revenue,” notes Bain. “Laughlin rated gaming play driven by an older demographic is still off ~10 percent to 15 percent, but should continue to normalize (post-vaccine drive/COVID).”

Analysts and investors also like the strength in Golden’s various businesses, including its gaming route unit (a business where they install slot machines in places like bars, restaurants, truck stops, etc.) and PT’s Entertainment.