Brightstar Lottery Stock Has Multiple Growth Levers, Says Analyst
Shares of Brightstar Lottery (NYSE: BRSL) have quietly increased by about 33% in the last ninety days, and at least one analyst thinks there may be more upside potential for the gaming stock.
Stifel analyst Jeffrey Stantial increased his price objective to $20 from $18, indicating potential upside of around 18% from the September 22 close, while reiterating a "buy" recommendation on the lottery operator in a recent report to clients. Earlier this year, IGT sold its worldwide gaming and PlayDigital divisions to Apollo worldwide Management (NYSE: APO), leaving behind Brightstar, formerly known as International Game Technology (IGT).
"Contract timing & well-documented macro resilience suggests only moderate downside risk near-term, with likely growing investor appreciation for lottery’s acylicality amidst worsening macro data,” observes Stantial. “This supports a durable & growing 5%+ dividend yield, which is further supplemented by positive estimate momentum & potential multiple re-rate underpinned by jackpot normalization, further cost-out runway, and accelerating organic growth algorithm.”
The argument of lotto resiliency in the face of economic hardship is straightforward and well-established. The lottery is one of the most recession-resistant products in the gaming industry, meaning that customers will spend a few dollars here and there on tickets regardless of the overall health of the economy, even as macroeconomic worries are making people cut back on their trips to Las Vegas.
Brightstar Stock May Be Catalyzed by iLottery
Even while iLottery isn't currently as popular as online casinos or sports betting, it is still a developing market. Internet lotteries present a huge possibility, according to some analysts, who also point out that the industry may eventually catch up to that of online sports betting.
This market segment is expanding and may act as a longer-term stimulus for Brightstar's stock price. The fact that internet lotteries are expanding both domestically and internationally is significant because it shows that Brightstar is not dependent on any one jurisdiction's acceptance of this type of gambling.
“Unpacking each, state-by-state adoption of iLottery has proven gradual, though management emphasized recent acceleration for existing contracts following rollout of a cloud solution, while Italy iLottery has started to accelerate following app improvement & buy-in from regulator/retailers,” adds Stantial.
Speaking of Italy, after a competitive bidding process, Brightstar spent $2.6 billion to extend its lottery contract there earlier this year. Investors began to worry that the company had overpaid to keep a deal it had had for over 30 years, but Stantial says those worries might be exaggerated because Brighstar can use that agreement to potentially increase its exposure in the largest wagering market in the Eurozone for iGaming, iLottery, and online sports betting.
The Brightstar Lottery May Be a Story of Shareholder Reward
The lottery operator showed some dedication to shareholder rewards in July when it announced $1.1 billion in investor benefits, such as a $500 million share repurchase program and a special dividend.
The business has been a loyal buyer of its own stock for a number of years, and it has the ability to significantly increase its dividend while lowering its outstanding debt.
“We expect the remainder of discretionary free cash flow to be allocated to debt pay-down and potentially opportunistic repurchases, with net leverage expected to drift marginally above 3x target level following the final Italian Lotto upfront fee tranche,” concludes Stantial.
