With the integration of advanced hardware and software technologies enhancing the gaming experience, the future of the video gaming terminal (VGT) market looks promising. Amid this growth, Accel Entertainment, Inc. (ACEL) seems to be well-positioned to capitalize on the sector’s growing momentum.
In recent days, the proliferation of zero-personnel, fully automated high-tech VGTs has not gone unnoticed. With the help of a fully automatic system, the number of employees and office costs can be greatly reduced, resulting in increasing profits for the industry.
Moreover, as hardware and software technologies improve, gaming terminals are offering more immersive experiences with higher resolutions, faster processing speeds, improved graphics, and realistic audio, resulting in increased user growth.
According to a study by Business Research Insights, the global video gaming terminals market is forecasted to reach $10.53 billion by 2033, growing at a CAGR of 7.3%.
That being said, ACEL’s stock has climbed 6.7% over the past six months and 16.7% over the past year, closing its last trading session at $12.02.
Now, let us discuss the factors that could affect the stock’s growth trajectory.
Recent Developments
On December 2, 2024, ACEL announced the acquisition of Fairmount Holdings, Inc., the owner of the FanDuel Sportsbook & Racetrack, for 3.45 million ACEL shares. The acquisition adds a single-site racetrack and future casino to expand ACEL's gaming expertise to a larger and more concentrated form factor.
With plans to invest $85 to $95 million to fund Phase I and then Phase II casino construction and modest track investments, the acquisition could enhance the company’s position as a local gaming platform and strengthen its future cash flows.
On November 5, 2024, ACEL announced the acquisition of 85% of the ownership interests of Toucan Gaming, LLC and LSM Gaming, LLC, two Louisiana-based route operators and owners of multiple licensed video poker establishments, for a total transaction cost of approximately $40 million.
Coming with 13 truck stop locations, which include a total of 450 terminals, and 60 3-machine locations, which include a total of 180 terminals, the business is expected to generate approximately $25 million of revenue and $6 million of adjusted EBITDA in 2025. This could expand ACEL’s reach into the Louisiana gaming market and boost its income streams.
Stable Historical Growth
Over the past three years, ACEL has demonstrated consistent growth across key financial metrics. Its revenue and EBITDA grew at a CAGR of 25.2% and 20.1%, respectively. Moreover, net income and EPS expanded at a CAGR of 38.2% and 44.2%, respectively.
Sound Financials
For the fiscal 2024 third quarter that ended September 30, 2024, ACEL’s total net revenues increased 5.1% year-over-year to $302.23 million. Its operating income amounted to $21.85 million.
Additionally, the company’s net income and EPS came in at $4.90 million and $0.06, respectively. As of September 30, 2024, ACEL’s cash and cash equivalents amounted to $265.09 million, compared to $261.61 million on December 31, 2023.
Optimistic Analyst Estimates
Analysts expect ACEL’s revenue for the fiscal 2024 fourth quarter (ended December 2024) to increase 3% year-over-year to $306.07 billion. Its EPS for the quarter is expected to come in at $0.21. Furthermore, the company has surpassed the consensus revenue and EPS estimates in each of the four trailing quarters, which is impressive.
Looking forward, ACEL’s revenue and EPS for the fiscal 2025 first quarter (ending in March) are expected to rise 2.8% and 4.7% year-over-year to $310.34 million and $0.24, respectively.
High Profitability
ACEL’s trailing-12-month EBIT margin of 8.32% is 2.2% higher than the industry average of 8.14%. Its trailing-12-month EBITDA margin stands at 13.46%, 17.7% higher than the industry average of 11.44%.
In addition, the company boasts a trailing-12-month ROCE of 21.15%, which is 90.7% higher than the sector average of 11.09%. Also, the stock's trailing 12-month asset turnover ratio of 1.33x outperforms the industry average of 0.99x by 33.9%.
Discounted Valuation
ACEL is currently trading at a forward non-GAAP P/E of 13.25x, which is 18.5% lower than the industry average of 16.26x. Moreover, the stock’s forward EV/EBIT multiple stands at 13.40, 11.3% lower than the industry average of 15.10x.
Additionally, it has a forward Price/Sales multiple of 0.81, which is 14.4% lower than the industry average of 0.95x. This indicates that ACEL is undervalued compared to the broader market, offering potential upside for investors.
POWR Ratings Reflects Optimism
ACEL’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
ACEL has an A grade for Sentiment, which is in line with the optimistic analyst estimates. Plus, the stock holds a B grade for Value, driven by its discounted valuation metrics relative to the industry average. The stock also holds a B grade for Stability, in line with its 24-month beta of 0.83.
Within the A-rated Entertainment - Casinos/Gambling industry, ACEL is ranked #8 out of 26 stocks. Beyond what is stated above, we have also given ACEL grades for Momentum, Quality, and Growth. Get all ACEL ratings here.
Bottom Line
Fueled by acquisitions that expand its range of gaming terminals, ACEL's position in the gaming terminal market seems robust. With expansions into different states and the introduction of profitable subsidiaries into its portfolio, the company is facilitating growth in its player base, which could strengthen its future cash flows.
Coupled with solid financials, optimistic analyst estimates, discounted valuation, and low volatility, ACEL is well-positioned to benefit from the expanding gaming terminal market.
How Does Accel Entertainment, Inc. (ACEL) Stack Up Against Its Peers?
Although ACEL’s near-term outlook appears sound, it may be worthwhile to explore its industry peers, who also exhibit even stronger POWR Ratings. So, consider these A (Strong Buy) rated stocks from the Entertainment - Casinos/Gambling industry:
Boyd Gaming Corporation (BYD)
PlayAGS, Inc. (AGS)
GAN Limited (GAN)
To explore more A or B-rated Entertainment - Casinos/Gambling stocks, click here.
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ACEL shares fell $0.02 (-0.17%) in premarket trading Monday. Year-to-date, ACEL has gained 12.55%, versus a 2.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Aritra_Gangopadhyay
Aritra is a financial journalist dedicated to breaking down complex financial topics into simple, actionable insights. Holding a Master’s degree in Economics, he uses his analytical expertise to help investors uncover unique opportunities for long-term success.
Is Accel Entertainment Inc. (ACEL) Set to Benefit from the Expanding Gaming Terminal Market? StockNews.com
