On Wednesday, the Supreme Court docket dominated Texas can not block the Ysleta del Sur Pueblo from providing bingo video games on its reservation close to El Paso. Gaming firm AGS (NYSE:AGS) is bullish on the excessive court docket’s resolution.
The choice extends the Supreme Court docket’s precedent of typically ruling in favor of tribal sovereignty, and will pave the best way for some type of gaming growth within the second-largest US state. Las Vegas-based AGS suits into the equation as a result of it’s a gaming provider to purchasers in Texas.
This ruling makes it doable for these sovereign Tribes to realize financial freedom and confirms their rights as federally acknowledged Tribes,” mentioned AGS CEO Dave Lopez in a press release.
The majority of AGS prospects are in Florida, Oklahoma, and Texas — the previous two dwelling to a number of the largest tribal casinos within the US.
Disappointing Inventory Response for AGS
In a extra sanguine market surroundings, AGS shares could have rallied on the Supreme Court docket ruling. However the present market local weather is very risky.
On Thursday, AGS shares plunged 15.63% on above-average quantity, as journey and leisure shares have been bludgeoned by considerations that top inflation and a doable recession will sap discretionary spending. Whereas Wall Road stays bullish on AGS, the inventory is down 32% for the reason that begin of the second quarter.
“Furthermore, we observe AGS’s tribal and business publicity over-indexes to states with favorable demographic developments (e.g. Florida, Alabama, Oklahoma, Texas),” writes Stifel analyst Jeffrey Stantial in a latest observe. “We count on COVID-19 enabled location flexibility to yield continued internet migration to those decrease value of residing states, serving to mitigate the potential danger of client spending starting to fade.”
Some analysts consider AGS has potential for sturdy long-term margin growth, as the corporate grows into what’s a powerful analysis and growth profile. That thesis is supported by a brisk tempo of recent installations and gross sales at regional and tribal casinos, as operators renew their give attention to high-margin gaming alternatives.
Texas State of Thoughts
Ysleta del Sur Pueblo, together with the Alabama-Coushatta — one other Texas tribe — had unhealthy timing. They turned federally acknowledged in 1987, a yr earlier than the Indian Gaming Regulatory Act (IGRA) was handed. It stays to be seen if the tribes will push to carry brick-and-mortar casinos to Texas.
“AGS stands by our Tribal operator companions as they give the impression of being to train their rights, and want them success in present and future ventures as sovereign Tribes within the State of Texas,” provides Lopez.
As for the funding thesis, Stantial believes AGS sporting a free money movement yield of roughly 20% subsequent yr and the corporate’s tribal publicity is favorable.
“AGS stays over-indexed to each prospects and geographies prone to outperform in a recession. We estimate ~70% of EGM revenues come from tribal prospects, vs. bigger friends nearer to ~40%. To the extent the financial system does expertise a significant downturn, we might count on tribal reinvestment into the slot ground to materially outpace business habits based mostly on historic pattern,” provides the analyst.