The Stars Group has a 47 per cent upside, says Echelon Wealth

Ahead of quarterly results from The Stars Group (The Stars Group Stock Quote, Chart TSX:TSGI), Echelon Wealth Partners analyst Gianluca Tucci is paring down his expectations for the global gaming company. Tucci’s research update to clients on Friday reiterated his “Buy” recommendation but came with a lowered target price of $37.50 (was C$40.00).

Stars Group will be reporting its first quarter fiscal 2019 prior to market open on May 15, with Tucci expecting that the company’s recent marketing campaigns will cut into both their net-win margin and Adjusted EBITDA margin. The analyst is calling for Q1 revenue, Adjusted EBITDA and Adjusted EPS of of $620 million, $217 million and $0.42 per share, respectively (previously $694 million, $248 million and $0.51 per share). (All figures in US dollars unless otherwise noted.)

“Stars Group via its recent acquisitions is a global powerhouse, with strong positions in all of the largest regulated global gaming markets – regulated markets represent approximately 80 per cent of proforma revenue with approximately 70 per cent of proforma revenue coming from the EU. We expect TSGI to leverage its scale and competitive advantages to continue growing market share and outpace market growth rates over the long term,” says Tucci.

“We believe shareholder value will grow from current levels concurrent with disciplined and focused execution and debt repayment,” he says.

The analyst reports that in conjunction with Stars Group’s recent investor day, management announced a three-to-five-year guidance, calling for annual constant currency revenue growth of eight to 12 per cent, annual adjusted diluted net EPS growth of at least ten per cent and leverage of 3.5x or lower.

Tucci has altered his 2019 forecast, now calling for 2019 revenue and Adjusted EBITDA of $2597.1 million and $947.8 million (was $2671.0 million and $979.0 million) along with 2020 revenue and Adjusted EBITDA of $2776.5 million and $1046.6 million.

Tucci’s C$37.50 target represents a projected return on investment of 47 per cent at the time of publication