Flutter Has Recession Insulation, Multiple Tailwinds, Says Analyst
Despite the challenges faced by another sports betting tax hike in Illinois, Flutter Entertainment's (NYSE: FLUT) shares have risen 9.44% so far this year.
The FanDuel parent company has a lot more potential, according to at least one analyst. James Wheatcroft, an analyst at Jefferies, has resumed coverage of the gaming stock and rates Flutter as a "buy." He has set a Wall Street-high price objective of $380, which indicates an upside of almost 35% from today's closing. Recession resilience is one of the factors contributing to the analyst's optimism in the stock.
"Our recent in-depth Recession Scenario note flagged the lack of historical correlation between online gambling and the macro backdrop. FLUT’s high online exposure (91% revenues), high geographic diversity (59% revenues outside main market), and solid balance sheet (2.2x leverage, with ongoing buyback) add insulation,” wrote Wheatcroft in a note released after the close of US markets today.
The analyst goes on to say that the recent slowdown in Flutter's US handle growth is less a function of the overall economy's difficulties and more of a result of the operator cutting back on promotional expenditures and changing its product lineup.
Flutter's Global Presence May Increase Stock
Flutter is well-known to American investors and bettors as the proprietor of FanDuel. That is true, and a newly adopted reporting structure that separates the company's domestic and international results emphasizes the significance of the US to the operator's investment thesis.
Nevertheless, it is impossible to overlook Flutter's global reach, which could give it an edge over rivals like DraftKings (NASDAQ: DKNG), which only conduct business in North America. According to Wheatcroft, market players could not be recognizing the full extent of Flutter's ex-US potential set.
“Despite 1Q25 headlines suggesting International market share losses, we see encouraging underlying dynamics in several markets (UK&I, Italy, Australia, Brazil), with further runway for share gains supported by regulatory change and mergers and acquisitions,” observes the analysts.
Speaking of foreign acquisitions, Flutter has been successful in doing so, acquiring a majority stake in Brazil's NSX Group and acquiring Snai of Italy. These agreements give the company exposure in two of the top gaming markets outside of the US.
The Valuation of Flutter Stock Is Not Demanding
Other tailwinds that Flutter has include the frequently mentioned potential inclusion of the stock in the S&P 500 and the company's share repurchase program, which could total up to $1 billion this year. According to Wheatcroft, Flutter might give investors back up to 60% of its present market value by 2030, even after deducting such buyback activity.
When taking into consideration the stock's strong features, the analyst observes that Flutter's free cash flow yield is not stretched on valuation and might reach 5% by the end of next year before rising to 10% by the end of 2030.
“Valuing the US at a 20% premium to DraftKings and International in line with S&P 500 consumer discretionary peers implies a $350 sum-of-the-parts price,” concludes Wheatcroft. “Or another way, a 20% premium to DraftKings implies International trades on 10x EV/EBITDA vs 13.5x historically. Our new Street-high $380 price target is DCF-based to reflect the long-term US opportunity.”
