Accel Entertainment (NYSE: ACEL) is undoubtedly the most faceless of the gaming stocks. One analyst sees potential in the shares, which could be due to the company's market valuation of $967.69 million, its operation in a less glamorous category, or both.
Texas Capital analyst David Bain began covering Accel in a recent report to clients, giving the distributed gaming provider a "buy" rating and a $17 price target. That price target suggests a 47.1% increase from the closing today.
"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.”
It's true that the investment community doesn't follow Accel very often. The name has only been covered by four sell-side analysts, including Bain. Given that several smaller, under-covered stocks have produced significant returns in the past, market history may be favorable for Accel.
A Consistent Growth Story for Accel Entertainment Stock
The business concept of Accel is simple to comprehend. Video gaming terminals (VGTs) are distributed by them to establishments like taverns, bars, restaurants, convenience stores, liquor stores, truck stops, and supermarkets. Although it's not glamorous, the company's potential for growth is unaffected.
It is demonstrating its growth narrative already. Accel only had a presence in one state in 2019. That number is six now, and as Bain notes, at the end of the second quarter, the company has 27,388 VGTs spread over 4,427 locations. That number of devices is slightly less than that of Boyd Gaming and Red Rock Resorts (NASDAQ: RRR), two regional casino operators.
Accel makes up for its lack of the glamour and hype of iGaming or online sports betting with a straightforward business plan that may provide long-term consistency and visibility, two qualities that investors frequently value.
“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.”
Additionally, Accel Entertainment Stock Is Valuable
Accel has a distinct growth profile, but that doesn't mean the valuation is high. The company's projected enterprise value/earnings before interest, taxes, depreciation, and amortization (EBITDA) estimations for 2025 and 2026, according to Bain, are 51% and 54% lower than those of the larger gaming supplier stock market, respectively.
Furthermore, the supplier's anticipated sales growth for both years greatly exceeds the anticipated revenue increase for regional gaming venues, and Accel's predicted free cash flow yields for 2025 and 2026 are on average 28% lower than the regional casino equity group.
“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.”