Why This Analyst Is Doubling Down on Golden Nugget

Golden Nugget Online Gaming Inc. (NASDAQ: GNOG) shares jumped on Tuesday after one analyst issued a very bullish upgrade on the stock. Although this stock has not received much coverage from analysts in the past, the online gambling industry is still very popular among investors and could prove lucrative in the future, at least according to Jefferies.

Jefferies initiated coverage with a Buy rating and a $28 price target, implying upside of 103% from the most recent closing price of $13.79. It is worth noting that Jefferies has a bull case with a $45 price target and a bear case with a $5 price target.

The main takeaway from the report is that the magnitude and productivity prospects of the iGaming market have not been fully appreciated by Wall Street, and Golden Nugget’s positioning and product strength have been proven in New Jersey. Jefferies noted that Golden Nugget’s digital gaming (iGaming, specifically) requires long-term vision in general.

Overall Jefferies believes that the iGaming market is overlooked. The firm went into further detail:

The prospective size of the TAM at $30-$40B indicated by operators (and GNOG) corresponds with our $19B legalized estimate and is therefore at least equivalent to sports betting, although this is based on fewer legal states with ~double the wager per capita spending. As well, iGaming bears a greater long-term margin opportunity at maturity than sports betting, given the inherently lower COGS. Our proprietary work supports GNOG’s focus on this market and an expected share target of 10% at scale.

Separately, Jefferies believes that the company’s “leadership-level” assets will be key elements of success going forward. It brings leadership-level assets with its ownership of the Golden Nugget brand, access to 10 markets through its five land-based casino assets and five partnerships/licenses, breadth of product with more than 870 titles (40% to 50% more than competitors’ averages), innovation (first live dealer room), and demonstrated CRM capabilities.

Excluding Tuesday’s move, Golden Nugget had underperformed the broad markets, with the stock down about 30% year to date. However, in the past 52 weeks, the share price was up closer to 39%.

Golden Nugget stock traded up about 13% on Tuesday to $15.55, in a 52-week range of $9.75 to $27.18. The consensus price target is $24.00.

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