Deutsche Bank has lowered its forecast for Golden Entertainment ahead of its Nov. 7 earnings release, but maintains a Buy rating on the “rising probability” that it sells a casino resort real estate in a leaseback opportunity. It didn’t name a potential property, but the Strat on the Las Vegas Strip falls in that category among Golden Entertainment’s properties.

Carlo Santatelli, an analyst at Deutsche Bank, said they lowered their forecast due to gaming-revenue headwinds in Las Vegas, the lingering impact of an increase in union contracts, the hotter-than-normal summer, and revenue and margin issues with its tavern segment.

“We believe our updated forecasts account for what we expect to be relatively stable trends in the key segments, adjusted for seasonality, which include a moderation of same-store top-line declines as we move into the fourth quarter,” Santarelli said. “That said, we acknowledge that the Golden story of late has been one of predominantly negative estimate revisions, which in our view has likely led to more speculation around strategic action.”

The revisions have also curbed valuation, “as the forward multiple has compressed by about two turns in 2024, despite what is in our view a rising probability of the sub-scale operator seeking a strategic transaction which should under most conditions unlock value for equity holders.”

Deutsche Bank’s price target stands at $36. Golden shares closed Thursday at $31.24, down $8.86 during 2024.

Acknowledging that taxes, coverage ratios, and numerous other complexities of a sale-leaseback transaction are difficult to fully appreciate and model, Santarelli said they have outlined what a hypothetical sale-leaseback transaction would mean for Golden shares. If only the casino-resort real estate is sold, It assumes about $87 million of rent on the $174 million of 2025 property-level EBITDAR Deutsche Bank forecasts.

“We assume Golden on a 2025 year-end basis would have $130 million of net cash, including the proceeds and capitalizing the $87 million of assumed rent,” Santarelli said. “We assume our 2025 EBITDAR can trade at a range of multiples, commensurate with OpCo valuations, of between six to seven times.”

Deutsche Bank said the analysis values Golden at $38 to $44 per share at the pro-forma trading multiples it calculates.

“At current levels, Golden trades at 7.4 times, 7 times, or 6.6 times our 2024, 2025, and 2026 adjusted EBITDA estimates, respectively,” Santarelli said. “From a free-cash-flow perspective, Golden trades at a 9.7%, 9.6%, and 9.6% yield on our 2024, 2025, and 206 FCF per share estimates, respectively.”

Downside risks include an uneven top-line environment in the post-COVID post-stimulus era that could create volatility in both revenue and, more importantly, adjusted EBITDA results. Others include geographical concentration, increased competition, and general macroeconomic risks, Santarelli said.