Amaya Q3 weak but not worth $2-billion haircut, says Cantor Fitzgerald

Amaya’s (Amaya Stock Quote, Chart, News: TSX:AYA, Nasdaq:AYA) third quarter results were weak, but not weak enough to warrant the punishment the company’s stock took in the market yesterday, says Cantor Fitzgerald Canada analyst Ralph Garcea.

Yesterday, shares of Amaya were hammered, losing approximately $2-billion in market capitalization after the company reported third quarter earnings that included lower guidance. The company says it now expects revenue will come in between $1.28-billion and $1.33-billion, not the $1.44-billion to $1.56-million it had previously predicted. It also expects its a hit to its bottom line, with pro forma adjusted net earnings expected to come in between $345-million and $365-million, not the $367-million to $415-million it had previously expected.

In its Q3, Amaya posted EBITDA of $141-million on revenue of approximately $325-million, a topline that was up 8% over the same period last year. The street consensus had EBITDA at $154-million and revenue at $361-million. The company’s adjusted earnings came in at $90.54-million or $0.42 per share, well below the consensus of $0.62.

Garcea says the market reaction to the soft quarter was far too severe. He notes that the company’s PokerStars business is stable, its casino business is growing and its Sportbook business will come into play eventually. The analyst says that some things that were taken as severe long term negatives aren’t necessarily as bad as they were perceived at first blush, and that the company’s overall business remains more than compelling.

“Blue Sky Scenario (on Amaya) Remains the Same,” said Garcea. “With a growing PokerStars base, and cross-sell leverage from Casino and Sportsbook, we could see AYA exit 2017 with a run-rate of ~$2.0B and EBITDA of ~$800M+.”

In a research update to clients today, Garcea maintained his “Buy” rating on Amaya, but reduced his target price from $50.00 to $45.00, implying a return of 113% at the time of publication.

More Cantech Gaming