Shares of Brightstar Lottery (NYSE: BRSL) experienced a significant rise on Wednesday following the resumption of coverage by Deutsche Bank analyst Steven Pizzella.
Pizzella has initiated coverage of the lottery giant with a “buy” recommendation and a price target of $15, indicating a potential upside of 40% based on its closing price on June 30. This optimistic outlook has led to a 6.16% increase in the stock’s value during midday trading. The analyst emphasizes Brightstar’s monopoly status and its resilience during tumultuous economic conditions as compelling reasons for investors to take notice of the stock.
“BRSL provides a consistent, low beta, and highly reliable earnings flow, stemming from its regulated monopoly status, lengthy government contracts, and stable demand for lottery services. This has historically translated to approximately 3% to 4% growth, even during challenging periods such as the financial crisis and COVID-19,” comments the analyst.
Despite being one of the most recession-proof sectors in the gaming industry, some investors may not fully recognize this characteristic of Brightstar, especially since the stock has declined by 26.36% year-to-date. The company powers the technology behind some of the most renowned lottery games, such as Mega Millions and Powerball.
Why Brightstar Stock Appeals to Certain Investors
Brightstar is recognized as a top contender benefiting from advancements in artificial intelligence (AI), though it may lack the allure associated with typical AI stocks. Nevertheless, it presents certain advantages that could attract patient value investors.
As noted by Deutsche Bank analyst Pizzella, Brightstar is a low beta stock with a “highly predictable earnings stream”, bolstered by its dominant market position and long-term agreements with state and national governments.
Moreover, lottery demand remains stable compared to other gaming sectors. While bettors might scale back their betting activity in downturns of consumer confidence or economic strain, lottery sales continue to grow at an annual rate of 3% to 4%.
“In an increasingly saturated gaming landscape, we see a distinct, undervalued opportunity in BRSL for long-term, value-focused investors,” notes Pizzella. “Given the stock’s underperformance—lagging our gaming coverage by about 2,700 basis points this year—we regard this as a favorable time to invest.”
Investing in Brightstar for Shareholder Returns
Brightstar Lottery’s stock is distinguished by its attractive yield of 8.58%, in contrast to many gaming companies that either offer low yields or no dividends. The lottery tech provider has increased its dividend payout for two consecutive years.
Additionally, the company actively buys back its shares, and a capital return initiative revealed last year exceeded Wall Street’s anticipations. The stock is also considered relatively inexpensive.
“Thus, at approximately 5x our forecast for 2027 adjusted EBITDA, we believe it is misaligned with its solid long-term fundamentals. Several catalysts could drive both earnings growth and a rise in valuation multiples, including; 1) an undervalued low beta cash flow stream, 2) potential growth from iLottery legalization and adoption, and 3) a robust return on capital profile underpinned by a sound balance sheet,” concludes Pizzella.