- Accel Entertainment is an underfollowed gaming stock, says analyst
- It’s a distributed gaming firm and the shares are cheap compared to other suppliers
Among gaming stocks, Accel Entertainment (NYSE: ACEL) leads an arguably anonymous existence. That could be the result of the company operating in a not-so-glamorous niche, a market capitalization of $967.69 million, or both, but one analyst sees opportunity in the shares.
In a new report to clients, Texas Capital analyst David Bain initiated coverage of Accel, placing a “buy” rating and $17 price target on the distributed gaming supplier. That price objective implies upside of 47.1% from today’s close.
We believe ACEL is an underfollowed/underappreciated gaming operator, which connects visible free cash flow generation, growth and an undemanding/discounted valuation,” observes Bain. “ACEL’s hyper-local, mostly variable-cost operations leave it better hedged against an economic downturn than most regional casinos, in our view, while forward sales and EBITDA growth outpaces the group average.”
The claim that Accel isn’t widely followed in the investment community is accurate. Bain is just the fourth sell-side analyst to cover the name. Market history could augur well for Accel because some smaller, under-covered stocks have gone on to deliver big returns.
Accel Entertainment Stock a Steady Growth Story
Accel’s business model is easy to understand. It distributes video gaming terminals (VGTs) in businesses such as restaurants, bars, taverns, convenience stores, liquor stores, truck stops, and grocery stores. That’s not glamorous, but it doesn’t diminish the company’s growth potential.
It’s already proving its growth story. In 2019, Accel had a footprint in just one state. Today that total is six and as Bain points out, the company 27,388 VGTs across 4,427 locations at the end of the second quarter. That device tally exceeds that of Red Rock Resorts (NASDAQ: RRR) and is just below that of Boyd Gaming — two regional casino operators.
What Accel lacks in terms of glitz and fanfare comparable to iGaming or online sports betting, it makes up for with a prosaic model that could offer long-term predictability and visibility — attributes often prized by investors.
“Distributed gaming growth is steady in mature markets, while lesser defined/younger markets offer significant growth potential,” adds Bain. “We believe distributed gaming’s hyper-local and variable cost structure nature leaves it more resilient than regional casinos in a potential economic downturn. Further, we believe distributed gaming offers unique longer-term geographic expansion potential exceeding that of brick-and-mortar regional casinos. ACEL is particularly positioned to profitably enter new potential markets, offering substantial unmodeled/uncontemplated forecast/stock upside, in our view.”
Accel Entertainment Stock Offers Value, Too
While Accel has a clear growth profile, that doesn’t imply valuation is demanding. Bain notes the stock’s estimated 2025 and 2026 enterprise value/earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates reside at discounts of 51% and 54%, respectively, to the broader universe of gaming supplier stocks.
Add to that, Accel’s estimated 2025 and 2026 free cash flow yields reside at an average discount of 28% to the regional casino equity group while the supplier’s expected sales growth for both years far outpaces forecast revenue increase for regional gaming venues.
“We believe ACEL offers visible, above-peer revenue, EBITDA and free cash flow growth with additional, unmodeled upside optionality,” concludes Bain. “Despite this, its stock valuation is well below its peers.”
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