Entain Plc's (OTC: GMVHY) US-listed shares are up around 38% so far this year, which is quietly good for one of the greatest performances among sports betting stocks. If investors price in the chance that the gaming company could engage in value-generating transactions, there may be additional upside.

The Coral owner's mergers and acquisitions (MA&) optionality has improved, according to a recent report to clients from Jefferies analyst James Wheatcroft, although the share price does not reflect this.  Entain may be able to assess transactions with improved profitability stability and a strong technology stack.

"Entain has built a track record of consistent delivery across recent quarters – we expect investor attention will now re-focus on M&A,” observes Wheatcroft.

He gives the stock a "buy" rating, adding that his sum of the parts (SOTP) analysis suggests an upside of about 55% from the stock's most recent trading position. However, this does not take into consideration the possibility that another company might offer to buy Entain in its entirety, which would require a premium to the prospective target's current share price.

Entain May Look at BetMGM Options

The revitalized BetMGM company, which has long been the focus of consolidation rumors, is jointly owned 50/50 by Entain and MGM Resorts International (NYSE: MGM).

In other words, it's common knowledge that MGM wants to buy all of BetMGM and that leaving the joint venture would bring in a sizable sum of money for Entain.  Joint ventures don't last forever, according to previous leadership regimes at the Ladbrokes owner. Now that the Entrain ship is stabilizing, management may consider possibilities for its BetMGM investment.

“The heavy presence of activist investors on the Entain share register implies an appetite for value realization,” adds Wheatcroft. “We think investors will therefore increasingly look to a SOTP valuation, with particular focus on BetMGM. A potential stand-alone option derived from a cloned Entain tech stack negates the need to acquire the whole of Entain. The wider range of strategic options for BetMGM value realisation, including a US listing and M&A, should generate valuation tension.”

Keith Meister's Corvex Management owns a portion of the gambling company, and Ricky Sandler, the founder of Eminence Capital, is a board member.  Meister's hedge firm owns stock in MGM, where he serves as a director.

Additional Choices for Entain

Although the sportsbook operator has other options to boost shareholder value, a value-creating agreement involving BetMGM is what draws attention and would probably command the highest amount of capital in a sale or US IPO for Entain.

According to recent media reports from Australia, where Entain has encountered regulatory challenges, Betr may be considering a bid for Entain Australia.

“A continued tough market backdrop, isolated tech platform and recent management departures make Australia a possible disposal candidate, in our view. Our SOTP highlights a £660 million ($890.1 million) value for Entain Australia,” concludes Wheatcroft.