Why Your 2021 Resolution Should Be to Buy More Gambling Stocks The casino and gambling industry had an even stranger year than most of the market in 2020, with some stocks tanking and others. Posted by admin Posted on January 31, 2021 Leave a Comment on Regional Gaming Stocks Look Pricey, Buy on Pulbacks, Says Analyst Posted on: January 30, 2021, 03:39h. Final up to date on: January 30, 2021.
Casino stocks were among the hardest hit when COVID-19 hit the U.S., and there hasn’t been the same swift recovery we’ve seen in other sectors. But the gambling industry may not be as hard-hit as you might think. It’s not like cruise lines, where ships are docked without customers. This isn’t even the hotel industry, where business and leisure travel has dropped to a standstill.
Resorts in Las Vegas and across the country can still rely on gamblers coming in to play a few hands of blackjack or sit at a slot machine for revenue. And that will keep them afloat until a full economic recovery kicks in. When it does, MGM Resorts(NYSE:MGM), Wynn Resorts(NASDAQ:WYNN), Las Vegas Sands(NYSE:LVS), and Caesars Entertainment(NASDAQ:CZR) could crush the market.
MGM data by YCharts
Las Vegas is open for business
Resorts and casinos in Las Vegas shut down when COVID-19 hit in March, but started to open for business at the beginning of June. And customers have flooded back in more quickly than I expected.
In July, gambling revenue was down just 39.2%, following a 61.4% drop in June. Clearly, customers are coming back and there seems to be momentum building.
Early indications are that travelers are slowly coming back, with hotel occupancy hovering around 35% last quarter and room rates down significantly across the Las Vegas Strip. But if casinos are still busy, it shows that revenue is flowing in, and when travel picks up we will likely see a quick recovery.
Macau is not so lucky
Despite the fact that China and Macau were hit by COVID-19 first, the region hasn’t recovered as quickly as investors hoped. Gambling revenue was still down 94.5% each of the last two months, and travel restrictions in and around China will hold the region back for some time.
Given the reliance companies like Wynn Resorts and Las Vegas Sands have on Macau, it’s not surprising their stocks are down big. But when a COVID-19 vaccine is released and travel restrictions around China are reduced, we’ve seen that the casino industry can recover extremely quickly.
Online gambling is the big upside
The new upside for 2020 is online gambling, and that’s where I think a stock like MGM Resorts has the most upside. Online gambling is simply a product extension for these companies, and there’s almost no risk to them financially. But for now, only Caesars and MGM have any sort of online offering.
We don’t know how big the online gambling business will be long-term, but investors buying casino stocks today are getting a good foundation with existing resorts and adding in pure upside from online gambling.
There’s value in casino stocks today
Long term, I don’t think the earning potential for casino stocks has changed much at all. Resorts in the U.S. and Macau still have restricted supply, so as demand returns, so will earnings. You can see above that the U.S. has shown that demand can come back relatively quickly.
Not only is there an upside for regular casino operations, but the online gambling business could also be a bonus for shareholders. If it takes off across the U.S., stocks like MGM and Caesars could be growth stocks for years to come. The value investors are getting today is worth the bet in casino stocks.
Posted on: January 30, 2021, 03:39h.
Final up to date on: January 30, 2021, 07:07h.
Gaming firms with restricted or no Las Vegas Strip publicity are proving sturdy relative to their Sin Metropolis-centric counterparts. However one analyst says it is likely to be time to take some chips off the desk.
JPMorgan analyst Joseph Greff, advises shoppers to embrace regional gaming equities on pullbacks, not at present, lofty costs.
We’re shocked with the 2021 share value power, which follows torrid share value efficiency within the 4Q20,” mentioned the analyst. “And given present valuation ranges, we typically suppose the group is significantly better to be purchased on pullbacks than placing in contemporary cash at present ranges.”
With coronavirus restrictions nonetheless in place at gaming venues throughout the nation, many on Wall Street don’t count on the trade to indicate indicators of earnings and income restoration till the again half of this 12 months.
On that observe, Greff pared fourth-quarter first half 2021 earnings earlier than curiosity, taxes, depreciation and amortization (EBITDA) estimates for an array of regional gaming names. They embody Boyd Gaming (NYSE:BYD), Caesars Leisure (NASDAQ:CZR), Churchill Downs (NASDAQ:CHDN), Penn Nationwide Gaming (NASDAQ:PENN) and Pink Rock Resorts (NASDAQ:RRR).
Regional Casinos Nonetheless Grappling with Pandemic
The JPMorgan analyst factors to “rising COVID-19 an infection charges and the following affect of on line casino restrictions on regional gaming visitation and spend” as causes for his downward revisions.
In the course of the pandemic, on line casino operators with much less vacation spot market publicity are proving resilient, as a result of they’re realizing new value efficiencies — a lot of that are seemingly everlasting — and prospects can drive to those properties. For buyers, every identify needs to be evaluated on a case-by-case foundation.
For instance, Boyd and Pink Rock generate important parts of their income and EBITDA from the Las Vegas locals segment. A lot of these patrons are staffers at different casinos, tying these operators to the Strip’s rebound, despite the fact that all of their Sin Metropolis venues are off the Strip.
Likewise, Caesars is the second-largest operator on the Strip. However its regional portfolio is deeper than that of rival of MGM Resorts. That’s a plus, however Greff sees tepid outcomes for regional operators throughout the board in the course of the first half of 2021.
“Equally, we count on 1Q21 regional outcomes to be much like December’s and count on 2Q21 to be modestly higher than the 1Q21; as such we’re reducing our 1H21 estimates,” he mentioned in a observe to shoppers.
Churchill, Penn Nationwide
Churchill Downs and Penn Nationwide Gaming are categorised as regional gaming names, with the latter boasting the most important roster of such casinos within the nation.
Nevertheless, the shares are up 28 % and 236 %, respectively, over the previous 12 months, as buyers more and more view these names as iGaming and online sports betting performs first, and on line casino operators second. Market members baking in on-line on line casino and sports activities wagering on the likes of Churchill and Penn results in greater valuations, one thing Greff cautions about concerning the broader regional group.
Casino Stocks To Buy 2021 Calendars
“And given present valuation ranges, we typically suppose the group is significantly better to be purchased on pullbacks than placing in contemporary cash at present ranges,” wrote the analyst.
He has “outperform” scores on all of the shares talked about right here.
Casino Stocks To Buy 2021
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