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Why Everi Holdings' Shares Popped 27.5% on Friday

By Travis Hoium – Jul 10, 2020 at 2:53PM

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A big upgrade sent shares higher today.

What happened 

Shares of casino fintech company Everi Holdings (EVRI 0.81%) jumped as much as 27.5% on Friday after the stock got a big upgrade from an analyst. At 1:40 p.m. EDT shares were up 24.1% and holding very strong gains.

So what

Analyst David Bain from Roth Capital was the one who caused shares of Everi to jump today when he put a buy rating and a $17 price target on the stock. Based on his estimates for calendar year 2022, he believes the average gaming supplier enterprise value-to-EBITDA multiple is 7.3, which would put shares at $11.50 apiece. He also thinks the company deserves a premium, which gets him to $17 per share.

Slot machines on a casino floor.

Image source: Getty Images.

That's a pretty significant upgrade: Everi stock closed yesterday at $4.66 per share. So the price target is nearly 4 times the trading price, a big jump even for the best growth stocks

Now what

EBITDA might be a commonly used metric in the gambling industry, but I'm not sure it's a good metric for Everi. The company makes kiosks and game cabinets that clearly have a useful life that's much shorter than a casino or the land a casino sits on. And the difference between the company's $253.2 million in adjusted EBITDA in 2019 and its $16.5 million in net income is driven by the depreciation being pulled out from EBITDA. There's a reason companies need to depreciate assets with a limited life. It's a very real cost that I think investors are overlooking in Everi's case. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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