Initiating with an Outperform rating. We are initiating coverage of Bowlero, the largest bowling operator and the owner of the Professional Bowlers Association (PBA), with an Outperform rating and a $14.50 price target. We believe that the BOWL shares trade at a substantial discount to other entertainment oriented companies. In our view, Bowlero appears to have a better growth profile than many of its peers.A growth oriented business that generates significant cash flow. Bowling has enjoyed a renaissance since 2010 with same store revenue growth and with high margins, save 2020 due to the pandemic. The company recently reported strong revenue growth that is above pre-Covid levels, which implies that the industry has recovered and is on a favorable growth trajectory.Attractive roll-up opportunity. Bowlero controls only 9% of the bowling centers in the United States. With roughly 3,700 bowling centers in the United States, largely mom and pop owned, there are attractive acquisition prospects. Furthermore, there is an attractive return on investment as the company upgrades the centers to offer expanded services, including enhanced food and beverages, amusements Financial flexibility. As of December 31, the company had $115 million in cash and $1.069 billion in debt and convertible preferred. Based on our estimates, the net debt is a reasonable 3.6 times estimated fiscal 2022 cash flow. The company generates significant free cash flow, with conversion rates well over 60% based on maintenance cap ex. Compelling stock valuation relative to peers. Near current levels, the BOWL shares trade at an implied 9.0 times Enterprise Value to our calendar year 2022 adj. EBITDA estimate and 7.3 times EV to our calendar year 2023 adj. EBITDA estimate, well below its peers. Our target price of $14.50 places a target EBITDA multiple in line with its peers, although we believe that the multiple could be among the leaders in the industry given its attractive growth profile. Read More >>