On Thursday, Stifel adjusted its stance on PlayAGS, Inc. (NYSE:AGS) stock, moving from a Buy to a Hold rating. The firm also set a new price target of $12.50, a slight increase from the previous $12.00 target.
This change follows the announcement of the company's acquisition by private equity firm Brightstar Capital Partners for $12.50 per share in cash, which was made public on May 9, 2024.
The analyst at Stifel noted that the valuation of the takeover, approximately 6.2 times the revised 2024 expected adjusted EBITDA, along with the termination fee structure, could potentially invite a competing offer.
However, factors such as a limited pool of potential buyers, the desire for management continuity, and an unpredictable future for regional gaming consumer spending and equipment replacement cycles have led to the expectation that the acquisition will proceed as announced.
At present, PlayAGS shares are trading with an approximately 8% gross spread to the offer price, which is about 3% net of the 1-year risk-free rate.
Although this spread is considered modestly appealing by the analyst, it does not meet the 10% threshold that Stifel typically associates with a Buy rating. Consequently, the firm has chosen to downgrade the stock to a Hold position.
Stifel has also revised its financial model for PlayAGS after reviewing the company's first-quarter results, which were detailed in the recent 10-Q filing. The firm has increased its adjusted EBITDA estimates for fiscal years 2024 and 2025 by 4% each, reflecting the latest performance data.
InvestingPro Insights
As PlayAGS, Inc. (NYSE:AGS) navigates through its acquisition by Brightstar Capital Partners, investors are closely monitoring the company's financial health and stock performance. Highlighting the importance of informed decisions, InvestingPro provides valuable insights into the company's current standing. With a market capitalization of $456.88 million and a high P/E ratio of 94.15, AGS's valuation demands attention. Notably, the company's gross profit margin impressively stands at 70.7%, indicating a strong ability to control costs relative to revenue.
InvestingPro Tips reveal that AGS's net income is expected to grow this year, and the company's impressive gross profit margins are a testament to its operational efficiency. However, the stock is currently in overbought territory according to the RSI, suggesting caution for potential investors. For those looking to delve deeper into AGS's financials and future prospects, additional tips are available on InvestingPro, including analysis on the company's earnings multiple and price/book ratio. To access these insights and more, utilize coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription. In total, there are 16 InvestingPro Tips that can provide further guidance for investors considering AGS stock.
In recent performance metrics, AGS has seen a strong return over the last year with an 85.58% price total return, reflecting significant investor confidence. The company's stock is also trading near its 52-week high, at 98.97% of the peak, which aligns with Stifel's new price target and the acquisition offer price. These data points and expert analyses can help investors assess the potential risks and rewards associated with the ongoing acquisition and the future of PlayAGS in the gaming industry.
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