Analyst touts Accel Entertainment potential acquisitions in 2025

Accel Entertainment has received a Buy rating from Wall Street, citing its strong balance sheet, purchase of Fairmount Holdings, and the potential for more acquisitions.

The Fairmount deal that closed in December enabled Accel to acquire FanDuel Sportsbook & Horseracing for $35 million, payable as 3.45 million shares of Accel A-1 common stock. The deal added a single-site racetrack and future casino in Illinois in the St. Louis market.

Deutsche Bank analyst Carlo Santarelli pointed out that the acquisition includes a master sports-betting license and partnership with FanDuel for retail and online sports betting in Illinois, racetrack operations and three active off-track betting locations in Illinois, and the opportunity to develop a casino.

“While the deal does give Accel incremental exposure to Illinois, we believe the deal also offers Accel a new longer-term growth stream in a largely complementary business to the core distributed route gaming operations,” Santarelli said. “We expect Accel to open a temporary facility in the middle of 2025 and the permanent facility to open in late 2027.”

Accel expects to generate adjusted EBITDA of $20 million to $25 million from the Fairmount Park Racino within five years. The success of the temporary casino and construction of the permanent will be a key focus for investors in 2025 and beyond.

Given Accel’s strong balance sheet, with 1.6 times net debt to EBITDA as of the end of the third quarter and solid free-cash-flow generation, the use of capital will be a key focus for investors in 2025, Santarelli said.

Accel has been active on the mergers and acquisition front and management has noted the pipeline continues to remain active, with diverse opportunities across geographies, sizes, and asset classes.

“We believe M&A will continue to be a priority for Accel, as it looks to expand and grow into new markets and diversify further from Illinois. We also believe Accel will continue to be actively repurchasing shares moving forward after buying back $30 million in 2023 and $22 million through the first three quarters of 2024.”

Santarelli believes the legislative outlook in Illinois will also be a focus in 2025 and beyond. Most recently, Illinois implemented a 1% tax increase on distributed gaming revenue. Half of the tax will be absorbed by Accel, while the locations account for the other half. He estimates the 50-basis-point increase represents a $4 million headwind over 12 months.

The impact was evident with gross margins down 25 basis points year-over-year in the third quarter, Santarelli said.

Accel has tried to offset the increase through cost controls and a program to cull the bottom 10% of its Illinois locations, which aren’t as economically viable. In addition, Accel continues to note the possibility for TITO to be legalized, which could be a nice tailwind to revenue, Santarelli said. Illinois is alson one of the states contemplating the legalization of igaming, which would directly compete with the VGTs.

“As previously noted, we view the likelihood of this legalization as low,” Santarelli said. “Lastly, while not our base case, any further distributed gaming legalization in 2025 would be a tailwind, further expanding the Accel total area market.”

Accel stock has been trading around $10, and Deutsche Bank has a price target of $14 by applying a 7.5 times multiple to its 2025 adjusted EBITDA forecast versus an 7.7 times forward-year average since the business combination and 7 times average since January 2021.