We see 2H23 revenue weakness as a result of bad luck as opposed to a sign of worsening demand or poor execution e.g. in 2H23E to date, Powerball jackpots have been won 42% of the time versus a historical average of 27%, with a high win rate limits the opportunity for TLC to accumulate larger jackpots and attract jackpot-elastic customers. However, mathematics will prevail over time and we see more $50-$100mn jackpots advertised moving forward which is good news for TLC. We have felt the stock has looked expensive for a while, it’s currently trading on 32.4x Est 2023 earnings again making cash a viable alternative.
- We like TLC as a defensive play under $5 although it’s unlikely to find itself in a MM portfolio.