S
unday, January 5, 2025 10:58 AM

    Deutsche Bank's Buy rating for Golden Entertainment shares is driven by a potential strategic change in the company's operations structure. According to analyst Carlo Santarelli, a sale of the real estate at current levels could drive over 20% upside in the stock, with an equity valuation of $40 and a price target of $36.

    Demand from gaming-oriented REITs remains strong in the Las Vegas market, but equity and rate markets have made transactions difficult. If this changes, Golden Entertainment may be open to selling its real estate and pursuing other strategic options related to its remaining operations company (OpCo).

    The key to 2025 is likely to be the stabilization of the STRAT property, which experienced a tough 2024 with a double-digit decline in EBITDA. While the Super Bowl will present a modest headwind in the first quarter, Santarelli expects STRAT to benefit from improved marketing and programming efforts.

    "We believe any signs of stability at the property in 2025 would serve as a positive catalyst for shares," Santarelli said. Golden Entertainment is expected to continue its buyback agenda, with an estimated $140 million return to shareholders (14% of the current market cap) possible through repurchases while remaining within a sub-three times net leverage framework.

    The $36 price target is based on a sum-of-the-parts approach that applies segment-level multiples consistent with historical market multiples and asset sales.