NASDAQ-listed Eldorado Resorts and Monarch Casino Resort are the regional gaming stocks that are worth buying at current levels, Jefferies analyst David Katz suggested.
Eldorado Resorts shares jumped 6.74 per cent during the past week after the announcement of finalization of an asset sale was crucial to seal its $17.3 billion deal to acquire rival gambling and entertainment firm Caesars Entertainment Corporation. A separate announcement regarding the Indiana, Nevada and New Jersey gaming regulators’ decision to discuss the proposed acquisition deal this month also provided a boost to the company’s shares. The regulators’ decision to take up the matter will potentially pave the way for the transaction to be completed by early August.
In Louisiana, Eldorado is in the process of offloading one of its venues to ease anti-competitive concerns of the regulators. Once the Eldorado-Caesars deal will get finalized, the entity will be operating three gaming properties in the state, making the Pelican state a vital part of the combined entity’s regional casino portfolio.
Analysts are of the view that Eldorado will be able to realize more cost savings following the finalization of the Caesars deal than formerly expected. As per the analyst, realization of more cost savings would pave the way for increased generation of free cash flow, potentially sending the stock to $100 or even higher in the coming few years.
Speaking on the topic, Katz said, “We continue to favor the inherent control of the regional gaming business model, the forthcoming benefits for Eldorado Resorts (ERI) in its pending merger with Caesars, as well as the financial stability of Churchill Downs (NASDAQ:CHDN) and Monarch Casino.”
Monarch Casino, which runs just one casino in Nevada and Colorado each, is also in the good books of the Jefferies analyst. This company is often overlooked by analysts while suggesting promising stocks, but it is now drawing interest from hedge funds as well as analysts. Katz has given Monarch a “buy” rating with a price target of $38, which represents an increase of nearly 12 per cent from the stock’s July 2nd close.
For Churchill Downs also, Katz has given a “buy” rating with a price target of $156 per share or upside of 18 per cent from ht stock’s latest close. Churchill recently cautioned that the COVID-19 lockdown could materially affect its second quarter results. However, with nearly $701 million in cash, the company is financially strong enough to survive more than one year in the current scenario.