Flutter’s deal to buy Boyd Gaming’s 5% stake in FanDuel is called a win-win situation

Analysts are busy sizing up the implications of Boyd Gaming (NYSE:BYD) selling its 5% stake in FanDuel to Flutter (NYSE:FLUT) for $1.76 billion. The deal boosts Flutter’s (NYSE:FLUT) position in the U.S. sports betting and iGaming business to 100% at an implied valuation of approximately $31 billion.

Bank of America called the deal a win-win situation for the two companies. “Boyd receives a large check in cash worth $17/share after tax and a remarkable return on their online approach. Flutter increases ownership in their fastest-growing asset, while also remarking their market access deal, which is an important offset to regulatory cost pressures,” updated analyst Shaun Kelley. “This could also have positive implications for additional savings as future online market access deals come up for renegotiation,” wrote Kelley.

“We see the $1.3B after tax inflow of cash to BYD reducing net leverage to <2x from current ~3x. Management has stated that it intends to use the proceeds to reduce debt, and we would expect $80-$85M in related interest expense savings,” highlighted Truist Securities analyst Barry Jonas. “Still with a perceived under-levered balance sheet, we think investors will focus on optionality around share repurchases, special dividends, and/or M&A,” he added.

Jonas and his team also think the transaction is a positive for Flutter Entertainment (FLUT) as it helps the company to reduce ambiguity and present a cleaner story to investors. Across the sector, the implied 16X EBITDA valuation is seen providing some support for DraftKings (DKNG), which trades with a 14X EBITDA multiple, Meanwhile, the cash infusion for Boyd Gaming (NYSE:BYD) could also boost valuation support for PENN Entertainment (PENN) due to increased M&A potential.

Jefferies maintained its Buy rating on Boyd Gaming (BYD) following the FanDuel (FLUT) transaction. “While more significant growth does not appear readily available to BYD, it is best positioned to capitalize among its peers should it present, which is bolstered by today’s announcement as leverage likely falls below the already manageable ~3X,” highlighted analyst David Katz.

Shares of Boyd Gaming (BYD) slipped 0.1% in premarket trading. Flutter Entertainment (FLUT) traded flat.