On Wednesday, the Supreme Margaret Court ruled Texas cannot city block the Ysleta del Sur Pueblo from offering bingo games on its reserve close El Paso. Gaming companion AGS (NYSE:AGS) is bullish on the heights court’s decision.
The decision extends the Supreme Court’s precedent of often ruling inwards favor of tribal sovereignty, and could pave the right smart for some pattern of gaming expansion in the second-largest US state. Las Vegas-based AGS fits into the equating because it’s a gaming provider to clients inwards Texas.
This ruling makes it possible for these supreme Tribes to clear economical freedom and confirms their rights as federally recognized Tribes,” said AGS CEO Dave Lopez inward a statement.
The mass of AGS customers are inward Florida, Oklahoma, and Lone-Star State — the former ii nursing home to some of the largest tribal casinos inwards the US.
Disappointing Stock Reaction for AGS
In a to a greater extent sanguine marketplace environment, AGS shares may have got rallied on the Supreme Court ruling. But the current securities industry climate is extremely volatile.
On Thursday, AGS shares plunged 15.63% on above-average volume, as move around and leisure stocks were bludgeoned by concerns that mellow rising prices and a possible recession will sap discretional spending. While Wall Street remains bullish on AGS, the inventory is downwards 32% since the start up of the indorsement quarter.
“Moreover, we musical note AGS’s tribal and commercial message exposure over-indexes to states with favorable demographic trends (e.g. Florida, Alabama, Oklahoma, Texas),” writes Stifel psychoanalyst Jeffrey Stantial inwards a recent note. “We await COVID-19 enabled location flexibleness to fruit continued network migration to these depress cost of living states, helping mitigate the potency danger of consumer outlay offset to fade.”
Some analysts believe AGS has potential for sturdy long-term margin expansion, as the companion grows into what’s an impressive search and developing profile. That thesis is supported by a brisk stride of new installations and sales at regional and tribal casinos, as operators renew their direction on high-margin gaming opportunities.
Texas State of Mind
Ysleta del Sur Pueblo, on with the Alabama-Coushatta — another TX federation of tribes — had spoiled timing. They became federally recognised inward 1987, a yr before the Indian Gaming Regulatory Act (IGRA) was passed. It remains to be seen if the tribes will push to bring brick-and-mortar casinos to Texas.
“AGS stands past our Tribal operator partners as they looking to work out their rights, and want them success in stream and time to come ventures as crowned head Tribes inwards the State of Texas,” adds Lopez.
As for the investment thesis, Stantial believes AGS sporting a loose cash in rate of flow afford of rough 20% next yr and the company’s tribal exposure is favorable.
“AGS remains over-indexed to both customers and geographies potential to outperform inwards a recession. We idea ~70% of EGM revenues add up from tribal customers, vs. larger peers closer to ~40%. To the extent the thriftiness does go through a meaningful downturn, we would await tribal reinvestment into the slot flooring to materially outpace commercial conduct based on historical trend,” adds the analyst.
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