Flutter Entertainment (NYSE: FLUT) shares rose by 1% today following an analyst's suggestion that the stock could more than double to $600 in the next four years. The gaming equity finished at $277.47 today. 

In a report to clients, Macquarie analyst Chad Beynon started coverage of the FanDuel parent with an “outperform” rating and a price target of $340, suggesting an upside of 22.8% from the current closing price. He observed that Flutter fulfills the "elusive" criteria for the software rule of 40, yet investors regard the company as a gaming stock rather than a software equity.

"FLUT is a rare large-cap stock in the gaming and leisure sector that meets software’s elusive Rule of 40, yet does not trade like one,” wrote Beynon. “Based on Flutter’s current/pending assets, we see a clear line of path for six-year (2024E-30E) revenue/earnings before interest, taxes, depreciation, and amortization (EBITDA) compound annual growth rates (CAGRs) of +12%/21%, fueled by an unrivaled SAM (serviceable addressable market) with a +10% CAGR to $210bn by 2030 and market share gains. If this path is executed on, our calculations show a potential ~$600 share price in a four-year time frame.”

In the software sector, the rule of 40 indicates that a software-as-a-service (SaaS) provider should maintain a total revenue growth and profit margin rate of 40%. SaaS is highly relevant for numerous cloud computing businesses. 

Flutter Stock Possesses Strong Moat Qualities 

Beynon noted that Flutter qualifies as a wide moat stock, signifying it possesses advantages like strong brand recognition and solid intellectual property (IP) that certain rivals cannot replicate. 

“FLUT benefits from a deep moat (i.e., unique IP, high switching costs, brand loyalty), creating significant barriers to entry. The potential for inorganic growth through strategic mergers and acquisitions and partnerships offer upside not in our forecast,” observed the analyst . “Thus, we believe FLUT is undervalued relative to its intrinsic worth, future growth prospects, and S&P 500 peers.”

The broad evaluation is precise since FanDuel ranks among the most valuable gaming brands globally, and in the US, it belongs to an online sports betting duopoly with DraftKings (NASDAQ: DKNG) as the other participant. 

Despite having numerous rivals, FanDuel usually occupies a high position in various bettor surveys related to technology and performs well in brand loyalty, suggesting that customers are "sticky" and those who depart frequently come back. FanDuel’s competitive advantage is strengthened by its extensive offerings and technological dominance in same-game parlays, which are favored by bettors and very lucrative for operators. 

Flutter Acquisitions May Increase Stock Value 

US investors frequently perceive Flutter primarily in terms of FanDuel, yet the truth is that the company possesses numerous other brands that dominate in various markets, such as Australia and Europe. 

Dublin-based Flutter achieved its leading position through a continuous stream of strategic acquisitions, and although the company often garners attention for its deals, investors might be underestimating the value of those purchases in the stock. 

“Since 2019, FLUT shares have seen a 23% CAGR (vs S&P 500 +16%), attributable to its major leading positions in current (US, UK/Ireland, Australia) and pending (Italy, Brazil) markets, achieved by its proven and replicable M&A strategy (‘Flutter Edge’),” concludes Beynon. “We estimate nine acquisitions since 2019 have created ~$200 of incremental per share value for investors with a long runway from secular trends of digitization and legalization.”