According to Jefferies Group, by 2023, the growing sports betting market in the US could be worth $5 billion, with three UK-based gambling companies leading the way. Jefferies Group is an independent multinational investment bank with its headquarters in New York City. The Jefferies Group was founded 58 years ago, by Boyd Jefferies in 1962. By revenue, Jefferies Group is the 9th largest investment bank in the world.
Jefferies Group Analysts Bullish on Gambling Stocks
Analysts at the Jefferies Group increased its target price on U.K.-based Flutter Entertainment, which includes William Hill, Paddy Power Betfair, and Ladbrokes Coral owner GVC. Jefferies believes the group’s profits could double in five years. Their evaluation assumes that Flutter Entertainment has a 20% market share, with GVC and William Hill both maintaining a 10% market share.
The bank also predicted a $19 billion gross gaming yield from the U.S. market by 2023; that is equal to a $5 billion Ebitda opportunity.
This prediction comes as more and more states legalize sports gambling following the May 2018 Supreme Court ruling. That ruling struck down the ban on legal gambling on basketball, baseball, football, and ice hockey, among other sports.
The analysts at Jefferies pointed out that twenty U.S. states have legalized sports betting son far. Right now, 14 states are up and running taking bets, which was much more quickly than the analysts originally anticipated.
New Jersey Leads the Pack and Sets the Tone for the Future
The rapid growth of sports betting in New Jersey, which was the first state to legalize sports betting since the ruling, is one reason the Jefferies Group upgraded Flutter’s stock. Since the Garden State’s first bet was placed in June 2018, over $5.8 billion worth of sports wagers has been placed.
“We upgraded our U.S. estimates for sports betting markets because we see a $5 billion Ebitda opportunity. Current valuations of Flutter, William Hill and GVC don’t attribute any material value for the U.S., despite the predictions that the U.S. will double the group profits in five years,” the Jefferies analysts, led by James Wheatcroft noted.
Flutter Entertainment is the market leader in the Garden State, following its acquisition of Fox Bet and FanDuel. Flutter also purchased the Stars Group last year. The acquisition of the Canadian-based online gaming company means that Flutter is now the world’s largest online betting operator.
Jefferies analysts also predicted that Flutter Entertainment was positioned to replicate its New Jersey success in other states. This optimism raised Flutter’s target price from 9,500p to 13,500p. That’s a significant 57% upside from the current price.
According to Jefferies, William Hill is also well-positioned. William Hill recently struck a lucrative deal with CBS Sports, allowing it access to the media leaders’ audience. Jefferies raised William Hill’s stock’s target price from 210p to 400p, a 111% upside.
William Hill has also partnered with Eldorado Resorts, the casino operator which has acquired Caesars Entertainment. “William Hill is well-positioned in the U.S., with a great track record and wide-ranging agreed market access. This access could grow materially when Eldorado Resorts acquires Caesars,” Wheatcroft said in a statement.
GVC, with its 50/50 joint venture between American casino giant MGM Resorts and ROAR Digital, also received a target price upgrade from 1,100p to 1,500p. That’s a 63% upside.
After a slow roll-out, as of December, ROAR had an 8% market share in New Jersey. However, the company has targeted a 15% market share in the state by the end of March, Jefferies analysts noted.
The message from Jefferies is, this could be a good time for investors to get involved with gambling stocks. The pay-off could be big.