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Best in Class

There are a few stocks that truly are investment-grade

Best in Class

There are myriad ways to invest, and there’s at least some validity to nearly all of them.

Many methods have little to do with investing in the sense that they are schemes for trading stocks, not for owning pieces of companies and growing with them. And at any one time or in any given stock, a proponent of any scheme can crow about his or her success because, as the old saying goes, every dog has its day.

But for those who choose to be investors, there is one straightforward winning strategy: Go with best in class.

I was reminded of that recently when Wynn Resorts and Red Rock Resorts reported strong fourth-quarter earnings and their stock prices rose to new highs—a recent high in the case of WYNN, an all-time high for RRR.

Wynn has a brand that everyone knows. It builds the finest casino resorts and draws high-end customers.

Red Rock, likewise, is developing the art of the upscale locals casino, and it is paying off, not just in capitalizing on the population growth and prosperity of the Las Vegas Valley, but in appealing to the ever-more-affluent residents of the metropolis.

Both companies benefit from visionary and stable leadership, an essential in the world of public companies, which are subject to driving short-term profitability through customer unfriendly means.

Red Rock has benefited by being led by founding brothers Frank and Lorenzo Fertitta who, because of their controlling positions, can follow through on their strategy of doubling in size while operating top-quality properties.

In the case of Wynn, the company is fortunate that CEO Craig Billings has maintained the emphasis of the highest quality that was the business model of founder Steve Wynn. And the company, as Billings pointed out in its recent investor conference call, has plenty of growth opportunities, even if just limited to the land it owns along the Las Vegas Strip.

Of course, not all is smooth sailing in the world of buy-and-hold. But if you did not buy Wynn at the giddy high or sell either it or RRR at the Covid bottom, you’ve had a prosperous ride, are currently receiving cash dividends and can feel comfortable that what has been a largely prosperous past will be prologue.

Erin Go Bragh

About 10 percent of Americans claim Irish heritage, which means there are a heck of a lot more Irish in the U.S. than the 7 million souls who inhabit the island of Ireland.

Thus, we welcome Flutter from the Old Sod to the New York Stock Exchange and soon, if shareholders approve, its primary listing from London to the countries across the sea.

(Historical note: Flutter began as a merger of 40 betting shops in Ireland into Paddy Power, a name derived from Power, one of the founders, and Patrick, the name of another partner. It had all of 8 percent of the Irish off-course betting market before it grew into publicly owned wagering powerhouse Flutter.)

So what does this have to do with investors? Jefferies analyst James Wheatcroft has an answer: FLUT (the company’s new American ticker symbol) should grow EBITDA from its U.S. operation, FanDuel, from $101 million last year to over $2.6 billion in 2030. And this is only for states where sports betting/iGaming is legal today. For comparison, FLTR (its current London ticker symbol) generated EBITDA under $2 billion for the whole company last year. Wheatcroft assumes Flutter simply maintains its combined U.S. sports betting-iGaming market share of 34 percent.

And then there is potential growth globally.

Nearer term, Flutter offers a chance for investors to profit, if analysts are correct. Wheatcroft’s stock price target, for example, is £195, up from a current £163.

Finally, for those who like some money back in their pockets not just reflected on a financial statement, Wheatcroft projects initiation of a dividend that would yield 1.6 percent this year and rise to 2.7 percent in two years.

Other analysts also see Flutter progressing with earnings and free cash flow growing while debt falls.

The projections of Flutter’s dominance come amid what, on the surface, seems a fluid North American market. Companies like PointsBet and Kindred are leaving while new competitors like Fanatics move in and others gin up major new relationships like Penn Entertainment and ESPN and DraftKings with Barstool.

But all the headlines merely distract from an ever-more clear reality—the U.S. iGaming market is dominated by just several competitors and, increasingly, just two—FanDuel and DraftKings.

No matter the market arrangements, no matter the new players, no matter the boasts by brick-and-mortar casino operators of their multimillion-player databases, the market remains FanDuel followed by DraftKings followed by a receding BetMGM.

In retrospect, the reasons for the big market shares of FanDuel and Draftkings is clear. Their millions of fantasy sports players were more naturally converted to online sports bettors than the customers of the giant brick-and-mortar casino companies.

The market shares also have been influenced by heavy promotion to build those shares. The emphasis by most operators now is to cut marketing costs and become profitable. That is an easier conversion for FanDuel as parent Flutter came to North America with its own technology and already profitable in the space.

Of course, investors still have plenty of choices, from brick-and-mortar operators turning digitally profitable like Caesars, small pure plays like Rush Street Interactive, affiliates and sports data providers, brick-and-mortar hybrids like MGM or, in the sense that it owns 5 percent of FanDuel and has its own iGaming operation, Boyd.

But there is only one global digital pure play with its own technology, existing and growing profitability and large market shares in the biggest markets—Flutter.

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