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Does This Valuation Of Brightstar Lottery (NYSE:BRSL) Imply Investors Are Overpaying?

Simply Wall St·07/15/2025 11:49:47
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Key Insights

  • Using the Dividend Discount Model, Brightstar Lottery fair value estimate is US$11.41
  • Brightstar Lottery is estimated to be 29% overvalued based on current share price of US$14.74
  • Analyst price target for BRSL is US$19.35, which is 70% above our fair value estimate

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Brightstar Lottery (NYSE:BRSL) as an investment opportunity by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

What's The Estimated Valuation?

We have to calculate the value of Brightstar Lottery slightly differently to other stocks because it is a hospitality company. Instead of using free cash flows, which are hard to estimate and often not reported by analysts in this industry, dividends per share (DPS) payments are used. This often underestimates the value of a stock, but it can still be good as a comparison to competitors. The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever. The dividend is expected to grow at an annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.9%. We then discount this figure to today's value at a cost of equity of 10%. Compared to the current share price of US$14.7, the company appears slightly overvalued at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.

Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)

= US$0.8 / (10% – 2.9%)

= US$11.4

dcf
NYSE:BRSL Discounted Cash Flow July 15th 2025

The Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Brightstar Lottery as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 10%, which is based on a levered beta of 1.429. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Check out our latest analysis for Brightstar Lottery

SWOT Analysis for Brightstar Lottery

Strength
  • Debt is well covered by cash flow.
  • Dividend is in the top 25% of dividend payers in the market.
Weakness
  • Interest payments on debt are not well covered.
Opportunity
  • Expected to breakeven next year.
  • Has sufficient cash runway for more than 3 years based on current free cash flows.
  • Good value based on P/S ratio compared to estimated Fair P/S ratio.
Threat
  • Paying a dividend but company is unprofitable.

Looking Ahead:

Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Why is the intrinsic value lower than the current share price? For Brightstar Lottery, there are three pertinent elements you should assess:

  1. Risks: You should be aware of the 1 warning sign for Brightstar Lottery we've uncovered before considering an investment in the company.
  2. Future Earnings: How does BRSL's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
  3. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks just search here.