Flutter Stock Could Double in 4 Years, Says Analyst
Shares of Flutter Entertainment (NYSE: FLUT) rose by 1% today after an analyst indicated that the stock could potentially rise to $600, more than doubling over the next four years. The equity for gaming settled at $277.47 today.
In a client report, Macquarie analyst Chad Beynon started coverage of the FanDuel parent with an “outperform” rating and a price target of $340, suggesting a potential gain of 22.8% from the current closing price. He observed that Flutter satisfies the "elusive" criteria for the software rule of 40, yet investors regard the name as a gaming stock rather than a software equity.
"FLUT is a rare large-cap stock in the gaming and leisure sector that meets software’s elusive Rule of 40, yet does not trade like one,” wrote Beynon. “Based on Flutter’s current/pending assets, we see a clear line of path for six-year (2024E-30E) revenue/earnings before interest, taxes, depreciation, and amortization (EBITDA) compound annual growth rates (CAGRs) of +12%/21%, fueled by an unrivaled SAM (serviceable addressable market) with a +10% CAGR to $210bn by 2030 and market share gains. If this path is executed on, our calculations show a potential ~$600 share price in a four-year time frame.”
In the software sector, the rule of 40 dictates that a software-as-a-service (SaaS) vendor must achieve a total of 40% in revenue growth and profit margin. SaaS is broadly relevant to numerous cloud computing firms.
Flutter Stock Possesses Strong Moat Attributes
Beynon stated that Flutter qualifies as a wide moat stock, indicating it possesses advantages like strong brand recognition and solid intellectual property (IP) that certain rivals cannot compete with.
“FLUT benefits from a deep moat (i.e., unique IP, high switching costs, brand loyalty), creating significant barriers to entry. The potential for inorganic growth through strategic mergers and acquisitions and partnerships offer upside not in our forecast,” observed the analyst . “Thus, we believe FLUT is undervalued relative to its intrinsic worth, future growth prospects, and S&P 500 peers.”
The broad evaluation is correct since FanDuel ranks among the most valuable gaming brands globally, and in the US, it operates within an online sports betting duopoly alongside DraftKings (NASDAQ: DKNG), the other participant.
Although FanDuel faces many competitors, it usually places at or near the top in various bettor surveys concerning technology and excels in brand loyalty, showing that clients are “sticky” and many who depart tend to come back. FanDuel's defensive advantage is strengthened partly by its extensive offerings and technological prowess in same-game parlays, which bettors favor and are very lucrative for operators.
Flutter Acquisitions May Enhance Stock Value
US investors frequently perceive Flutter primarily in relation to FanDuel; however, the truth is that the company encompasses numerous other brands that hold a dominant presence in various markets, such as Australia and Europe.
Dublin-based Flutter achieved its leading position through a continuous series of strategic acquisitions, and although the company often makes news for its deals, investors might not be fully recognizing the value of those purchases in the shares.
“Since 2019, FLUT shares have seen a 23% CAGR (vs S&P 500 +16%), attributable to its major leading positions in current (US, UK/Ireland, Australia) and pending (Italy, Brazil) markets, achieved by its proven and replicable M&A strategy (‘Flutter Edge’),” concludes Beynon. “We estimate nine acquisitions since 2019 have created ~$200 of incremental per share value for investors with a long runway from secular trends of digitization and legalization.”
