What happened?
Global gaming and interactive entertainment company The Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG) is up over 9% so far in today’s trading session after the company raised its full-year guidance for fiscal 2017 and announced the prepayment of second-lien debt this morning.
So what?
Here’s a breakdown of The Stars Group’s updated guidance for fiscal 2017 compared with its previous guidance:
| Metric | Updated guidance | Previous guidance |
| Revenues | US$1,285 million-US$1,315 million | US$1,200 million-US$1,260 million |
| Adjusted EBITDA | US$590 million-$610 million | US$560 million-US$580 million |
| Adjusted net earnings | US$445 million-US$469 million | US$413 million-US$437 million |
| Adjusted net earnings per share (EPS) — diluted | US$2.17-US$2.31 | US$2.01-US$2.15 |
The Stars Group’s updated guidance calls for revenue growth of 11-14%, adjusted EBITDA growth of 13-16%, adjusted net earnings growth of 21-28%, and adjusted EPS growth of 15-23% compared with its results in fiscal 2016. The company had already raised its full-year guidance in its second-quarter earnings release last month, so this raise came as a welcomed surprise to the market.
The company also announced that it will be prepaying without penalty an additional $75 million under its second-lien term loan during the week of September 18-22 using cash on hand and cash flow from operations; this will bring its total repayment of second-lien debt to $115 million so far in 2017, and it will reduce its annual interest expense to approximately $9.5 million and the principal balance of its second-lien term loan to just $95 million.
Now what?
The Stars Group’s stock is up over 1% since I last recommended it on August 10 following its very strong second-quarter earnings release, and I think it represents an even more attractive long-term investment opportunity today, because it’s even more undervalued than before; the stock now trades at just 8.8 times the low end of its new guidance and a mere 8.3 times the high end of its new guidance for fiscal 2017, both of which are very inexpensive given its current double-digit percentage earnings-growth rate.
With all of this being said, I think Foolish investors should strongly consider initiating long-term positions in The Stars Group today with the intention of adding to those positions on any significant pullback in the future.
