FANTINI ’ S FINANCE
Best in Class
There are a few stocks that truly are investment-grade
BY FRANK FANTINI
There are myriad ways to invest , and there ’ s at least some validity to nearly all of them .
Many methods have little to do with investing in the sense that they are schemes for trading stocks , not for owning pieces of companies and growing with them . And at any one time or in any given stock , a proponent of any scheme can crow about his or her success because , as the old saying goes , every dog has its day .
But for those who choose to be investors , there is one straightforward winning strategy : Go with best in class .
I was reminded of that recently when Wynn Resorts and Red Rock Resorts reported strong fourth-quarter earnings and their stock prices rose to new highs — a recent high in the case of WYNN , an all-time high for RRR .
Wynn has a brand that everyone knows . It builds the finest casino resorts and draws high-end customers .
Red Rock , likewise , is developing the art of the upscale locals casino , and it is paying off , not just in capitalizing on the population growth and prosperity of the Las Vegas Valley , but in appealing to the ever-more-affluent residents of the metropolis . Both companies benefit from visionary and stable leadership , an essential in the world of public companies , which are subject to driving shortterm profitability through customer unfriendly means .
Red Rock has benefited by being led by founding brothers Frank and Lorenzo Fertitta who , because of their controlling positions , can follow through on their strategy of doubling in size while operating top-quality properties .
In the case of Wynn , the company is fortunate that CEO Craig Billings has maintained the emphasis of the highest quality that was the business model of founder Steve Wynn . And the company , as Billings pointed out in its recent investor conference call , has plenty of growth opportunities , even if just limited to the land it owns along the Las Vegas Strip .
Of course , not all is smooth sailing in the
12 Global Gaming Business MARCH 2024 world of buy-and-hold . But if you did not buy Wynn at the giddy high or sell either it or RRR at the Covid bottom , you ’ ve had a prosperous ride , are currently receiving cash dividends and can feel comfortable that what has been a largely prosperous past will be prologue .
Erin Go Bragh About 10 percent of Americans claim Irish heritage , which means there are a heck of a lot more Irish in the U . S . than the 7 million souls who inhabit the island of Ireland .
Thus , we welcome Flutter from the Old Sod to the New York Stock Exchange and soon , if shareholders approve , its primary listing from London to the countries across the sea .
( Historical note : Flutter began as a merger of 40 betting shops in Ireland into Paddy Power , a name derived from Power , one of the founders , and Patrick , the name of another partner . It had all of 8 percent of the Irish off-course betting market before it grew into publicly owned wagering powerhouse Flutter .)
So what does this have to do with investors ? Jefferies analyst James Wheatcroft has an answer : FLUT ( the company ’ s new American ticker symbol ) should grow EBITDA from its U . S . operation , FanDuel , from $ 101 million last year to over $ 2.6 billion in 2030 . And this is only for states where sports betting / iGaming is legal today . For comparison , FLTR ( its current London ticker symbol ) generated EBITDA under $ 2 billion for the whole company last year . Wheatcroft assumes Flutter simply maintains its combined U . S . sports betting-iGaming market share of 34 percent . And then there is potential growth globally . Nearer term , Flutter offers a chance for investors to profit , if analysts are correct . Wheatcroft ’ s stock price target , for example , is £ 195 , up from a current £ 163 .
Finally , for those who like some money back in their pockets not just reflected on a financial statement , Wheatcroft projects initiation of a dividend that would yield 1.6 percent this year and rise to 2.7 percent in two years .
Other analysts also see Flutter progressing with earnings and free cash flow growing while debt falls .
The projections of Flutter ’ s dominance come amid what , on the surface , seems a fluid North American market . Companies like PointsBet and Kindred are leaving while new competitors like Fanatics move in and others gin up major new relationships like Penn Entertainment and ESPN and DraftKings with Barstool .
But all the headlines merely distract from an ever-more clear reality — the U . S . iGaming market is dominated by just several competitors and , increasingly , just two — FanDuel and DraftKings .
No matter the market arrangements , no matter the new players , no matter the boasts by brick-andmortar casino operators of their multimillion-player databases , the market remains FanDuel followed by DraftKings followed by a receding BetMGM .
In retrospect , the reasons for the big market shares of FanDuel and Draftkings is clear . Their millions of fantasy sports players were more naturally converted to online sports bettors than the customers of the giant brick-and-mortar casino companies .
The market shares also have been influenced by heavy promotion to build those shares . The emphasis by most operators now is to cut marketing costs and become profitable . That is an easier conversion for FanDuel as parent Flutter came to North America with its own technology and already profitable in the space .
Of course , investors still have plenty of choices , from brick-and-mortar operators turning digitally profitable like Caesars , small pure plays like Rush Street Interactive , affiliates and sports data providers , brick-and-mortar hybrids like MGM or , in the sense that it owns 5 percent of FanDuel and has its own iGaming operation , Boyd .
But there is only one global digital pure play with its own technology , existing and growing profitability and large market shares in the biggest markets — Flutter .
Frank Fantini is principal at Fantini Advisors , investors and consultants with a focus on gaming .