Why The Stars Group Inc. Is up Over 9%

The Stars Group Inc. (TSX:TSGI)(NASDAQ:TSG) is up over 9% after it raised its full-year guidance and announced a debt prepayment this morning. What should you do now? Let’s find out.

The Motley Fool

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stock mentioned.

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