Posted on: October 12, 2023, 02:13h.
Last updated on: October 12, 2023, 02:13h.
Golden Entertainment (NASDAQ: GDEN) could be seeking acquisitions, backed by their strong balance sheet, according to Deutsche Bank analyst Carlo Santarelli. The analyst, who recently met with Golden’s management at the Global Gaming Expo (G2E) in Las Vegas, reiterated a “buy” rating on the Strat operator with a price target of $46, implying a 35% upside from current levels.
“We felt the tone around potential M&A was a bit more pronounced, with management noting that it believes growth via acquisition was a realistic strategy at present, given the strength of the balance sheet,” wrote Santarelli.
Golden Entertainment had $166 million in cash on hand and outstanding liabilities of $735 million at the end of the second quarter. The recent sale of the Rocky Gap Casino Resort in Flintstone, Md., allowed the operator to reduce its debt burden by $175 million, further strengthening its financial position.
Golden Entertainment’s Acquisition Prospects
Now with all their casinos located in Nevada, Golden Entertainment is likely to focus its casino acquisitions in geographies west of Colorado. The analyst adds that single asset multiples for assets with real estate are currently in the 8-9x range. Potential locations for acquisitions include Las Vegas, Reno/Lake Tahoe, and Colorado.
While Golden may consider acquisitions in Colorado and Nevada, other states west of Colorado either don’t permit casinos or have gaming industries controlled by tribal operators.
In Nevada, Golden may not need to add another venue in Pahrump, and they could potentially be sellers rather than buyers in Laughlin, given their existing leading operator status there. This leaves Las Vegas and Reno/Lake Tahoe as the most likely destinations for Golden’s deal-making.
With the rapid growth and evolution of the Reno/Tahoe region and Golden’s lack of exposure to the casino market there, it could be the ideal jurisdiction for the company to pursue bolt-on acquisitions, although no official comments have been made regarding this potential move.
Key Factors for Golden Entertainment
In Las Vegas, the Strat stands as Golden’s flagship property and has several positive factors in its favor, including recent room enhancements, the upcoming Las Vegas Grand Prix, and the Super Bowl next February. Additionally, the debut of Atomic Golf at the Strat, scheduled for December, could contribute significantly to the property’s success.
“Atomic Golf, which is slated to open in December and is located at the north end of the property adjacent to the northern entrance to the casino, should be a nice contributor to GDEN,” concluded the analyst. “Recall, GDEN gets a revenue share from the property, which we believe is in the mid to high single-digit percentage range, and should also benefit from increased pedestrian traffic at the property. In total, we think the project is likely to add $5-10 mm of incremental property EBITDA on an annual basis, as soon as 2024.”