US Expansion, Product Development And Acquisitions Will Create Future Value

Key Takeaways

• Expansion into the U.S. and new markets aims to drive future revenue growth and strengthen Flutter's geographic presence.
  
• Strategic investments in product innovation and cost transformation programs are expected to enhance customer engagement and improve net margins.
  
• Increased competition and regulatory changes in various markets could impact profitability, operating margins, and growth despite Flutter's strategic positions and acquisitions.

Catalysts

Operates as a sports betting and gaming company in the United States, the United Kingdom, Ireland, Australia, Italy, and internationally.

• Flutter Entertainment's expansion strategy includes growing its leadership position in the U.S. market and entering new regions, like North Carolina and Vermont, leading to anticipated future revenue growth from these geographic expansions.
  
• The company's investment in product innovation, such as the ongoing development of the Your Way customizable betting product, is expected to enhance customer engagement and increase structural hold rates, positively impacting net margins.
  
• The £1 billion share repurchase program planned for 2025 is anticipated to enhance shareholder value and boost earnings per share (EPS) through a reduced share count.
  
• The acquisition of Snai and NSX is expected in the first half of 2025 and will likely boost Flutter's scale and diversification, contributing to revenue and adjusted EBITDA growth in high-growth markets.
  
• Flutter's cost transformation programs, aimed at delivering annual cost savings of $300 million by 2027, are expected to boost operating leverage and improve net margins over time.

Flutter Entertainment Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Flutter Entertainment's revenue will grow by 15.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 8.9% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $11.26) by about May 2028, up from $43.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.2 billion in earnings, and the most bearish expecting $1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.5x on those 2028 earnings, down from 980.5x today. This future PE is greater than the current PE for the GB Hospitality industry at 22.6x.
• Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.03%, as per the Simply Wall St company report.

Flutter Entertainment Future Earnings Per Share Growth

Risks

• The potential increase in state gaming taxes within the U.S. regulated sports betting market may impact profitability and net revenue, despite Flutter's larger position for mitigation.
  
• The highly competitive market in Brazil with up to 200 companies applying for licenses could result in increased operating losses, potentially impacting net margins and earnings.
  
• The reliance on parlay and high-margin products to drive growth might lead to lower handle growth, possibly affecting total revenue despite a focus on structural hold improvements.
  
• Short-term setbacks due to adverse sports outcomes, as seen with customer-friendly NFL results, could affect quarterly earnings and volatility in margins.
  
• Any failure to effectively integrate recent acquisitions or to capitalize on market expansions, particularly in Italy with Snai and across South America, could delay revenue growth and return on investment.

Valuation

• The analysts have a consensus price target of $309.585 for Flutter Entertainment based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $367.0, and the most bearish reporting a price target of just $254.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $21.7 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 35.5x, assuming you use a discount rate of 8.0%.
• Given the current share price of $238.62, the analyst price target of $309.58 is 22.9% 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.