Eldorado Still Has Triple-Digit Price Potential, According to Analyst

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By Todd Shriber

Shares of Eldorado Resorts (NASDAQ:ERI) are higher by more than 10 percent in midday trading Monday, a move supported in part by an analyst saying the stock has the potential to become a triple-digit name in the future.

In a note to clients earlier today, Stifel analyst Steven Wieczynski reiterated a “buy” rating on the regional gaming company, while boosting his price forecast to $60 from $42. The new projection implies upside of more than 50 percent from where the name trades at this writing.

Our long-term bullish thesis around the ERI story has not changed at all,” said the analyst. “ERI remains our top idea across our entire coverage universe, and we still believe this will be a triple-digit stock at some point in the not-too-distant future.”

The Monday rebound for ERI stock comes after the name bled almost 14 percent last week, as gaming equities were pummeled by a resurgence in coronavirus cases.

Plenty of Conviction in Caesars Deal

Wieczynski acknowledges that Eldorado’s path to the $100 club probably won’t be smooth. But he sees plenty of tailwinds coming from the operator’s takeover of rival Caesars Entertainment (NASDAQ:CZR). The Federal Trade Commission (FTC) signed off on that deal last week.

“While there might not be a linear path to triple-digit land, given there could be some rocky trading patterns in the near-term until the COVID-19 noise/overhang dissipates, we have even more conviction in management’s CZR synergy opportunity, as well as the free cash flow (FCF) potential of the combined entity,” said the analyst.

Saying ERI could be a $100 stock wasn’t a far-flung notion in February, when the shares flirted with $71. Then the coronavirus pandemic struck, sending gaming equities tumbling. ERI’s peak-to-trough decline was one of the more breathtaking in the industry, as the stock went in a matter of weeks from the aforementioned $71 flirtation to a struggle to stay above $6.

From current levels, ERI would need to jump about 150 percent to get to $100. But it’s not an impossible move, as Wieczynski says, “We would note we still believe we are being conservative around some of our core margin and sports betting/iGaming assumptions.”

By bringing Caesars into the fold, Eldorado is significantly expanding its internet casinos and sports wagering footprints.

Betting on Management

A common refrain on Wall Street is that a bet on the combined ERI/Caesars is a wager on the former’s management team, which has a documented history of successful acquisition integration, including the 2018 deal for Tropicana Entertainment.

Wieczynski embraces that view, noting it’s possible the $500 million in cost savings Eldorado said it’s looking for upon announcing the offer for Caesars a year ago could easily be surpassed.

“Very similar to a hot craps/blackjack table, we are going to continue to ride the coattails of this management team, as we have even more confidence in them now than we did five months ago,” said the analyst. “And what we mean by that is, pre-COVID-19, we believed there was substantial upside to ERI’s targeted $500M CZR synergy estimate.”

His $60 price target is well above the consensus forecast of $47.10.