Expanding Into New Markets Will Transform US Gaming Environment

Key Takeaways

• Geographic expansion, rising consumer demand, and M&A activity are driving revenue growth, improved margins, and greater scale in existing and new markets.
  
• Investment in technology, player engagement tools, and favorable regulatory trends boosts operational efficiency, customer loyalty, and long-term earnings potential.
  
• Heavy dependence on Illinois, location risks, high capital needs, low-margin new markets, and growing competition threaten revenue stability and profit margins.

Catalysts

Operates as a distributed gaming and local entertainment operator in the United States.

• Expansion into new and developing markets-such as Nebraska, Georgia, Louisiana, and continued optimization in Nevada-positions Accel to capture incremental revenue growth as broader legalization and acceptance of gaming increases the total addressable market for distributed VGTs. This ongoing geographic diversification supports a sustained top-line revenue growth trajectory.
  
• Increasing demand for experiential and accessible local entertainment (as consumers opt to spend on experiences over goods) boosts play volumes at Accel's partner locations, supporting rising revenue per machine and margin expansion in core and developing markets.
  
• Strategic M&A activity, including recent acquisitions in Louisiana and the continuing evaluation of additional "bite-sized" opportunities in a fragmented industry, allows Accel to add assets with room for operational improvements, driving both immediate revenue synergies and improved net margins as scale is realized.
  
• Investments in proprietary systems, player loyalty tools, and customer experience enhancements like TITO (ticket-in, ticket-out) in Illinois and content rollouts in Montana are set to drive greater customer engagement, optimize machine utilization, reduce operating expenses, and expand EBITDA margins in the coming years.
  
• Legislation and regulatory developments, such as Louisiana's approval for more machines per location, are set to increase Accel's number of active terminals and potential play volumes, leading to higher recurring fee revenue and enhanced long-term earnings visibility.

Accel Entertainment Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Accel Entertainment's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 7.2% in 3 years time.
• Analysts expect earnings to reach $107.3 million (and earnings per share of $1.2) by about August 2028, up from $35.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, down from 27.3x today. This future PE is lower than the current PE for the US Hospitality industry at 22.8x.
• Analysts expect the number of shares outstanding to grow by 2.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.2%, as per the Simply Wall St company report.

Accel Entertainment Future Earnings Per Share Growth

Risks

• Heavy revenue and operating margin reliance on Illinois exposes Accel to significant earnings volatility and regulatory risk if adverse legislative or policy changes occur within the state, directly impacting revenue and net margins.
  
• The loss of a key customer in Nevada and revenue declines in that market highlight exposure to location-specific risks and customer concentration, which could create unpredictable earnings swings and impair long-term revenue growth in developing markets.
  
• Ongoing and significant capital expenditure requirements to support new market entry, acquisitions, and property upgrades (e.g., Fairmount Park Phase 2) may pressure free cash flow and constrain future earnings if new investments underperform expectations.
  
• Expansion into new markets with initially lower margins (as noted for Louisiana and Fairmount Park) could dilute overall net margins and drag on consolidated earnings if scale and operational synergies are not realized as projected.
  
• Rising competition in distributed gaming-including from large, well-capitalized gaming operators and alternative entertainment formats (e.g., online/mobile gaming)-could limit Accel's pricing power, depress revenue growth, and compress net margins over time.

Valuation

• The analysts have a consensus price target of $16.0 for Accel Entertainment based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $107.3 million, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 10.2%.
• Given the current share price of $11.42, the analyst price target of $16.0 is 28.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.