Although it is carried on across the United States every day of the year, sports betting is only legal in Nevada and Delaware. After years of efforts to change the rulings that kept it illegal, that prohibition may soon come to an end. It should come as no surprise that cash-strapped states around the country want to tap into sports betting as a source of revenue, similar to what is common across Europe, and some top companies may be poised to benefit.
In new research report, Jefferies feels that the addition of sports betting would indeed be a near-term positive for some of the gaming stocks in its coverage universe. It also feels the possibility for sports betting to become legal is a distinct possibility, and the report noted this:
The U.S. Supreme Court is expected to rule on a case involving the constitutionality defined by a 1992 law, the Professional and Amateur Sports Protection Act, which prohibits states other than Nevada and Delaware from operating sports betting. The current Street expectation is highly skewed to PASPA being repealed, with several states passing legislation in advance and others indicating high interest in pursuing the matter.
Jefferies feels that the top regional operators and also the companies that provide gaming technology could be the ones that benefit the most. Four were cited in the report, with three being rated Buy and one with a Hold rating.
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Caesars Entertainment
This well-known old-school gaming company offers solid upside. Caesars Entertainment Corp. (NASDAQ: CZR) provides casino-entertainment and hospitality services. Its segments include Caesars Entertainment Resort Properties, Caesars Growth Partners, and Other. The company’s resorts operate primarily under the Harrah’s, Caesars and Horseshoe brand names.
Caesars facilities include gaming offerings, food and beverage outlets, hotel and convention space, and non-gaming entertainment options. As of July 14, 2017, the company through its subsidiaries, operated 47 casinos in 13 states and five countries. The company recently completed a large reorganization, and with solid exposure to Las Vegas strip trends, it looks to be a solid stock for aggressive accounts.
Jefferies analyst rates the stock at Hold, with a price target for the shares of $14. The Wall Street consensus target is $15.20. Shares closed on Monday at $11.35.
International Game Technology
This stock has been hit over the past month and is offering a nice entry point for investors. International Game Technology PLC (NYSE: IGT) is the global leader in gaming. The company enables players to experience their favorite games across all channels and regulated segments, from Gaming Machines and Lotteries to Interactive and Social Gaming.
Leveraging a wealth of premium content, substantial investment in innovation, in-depth customer intelligence, operational expertise and leading-edge technology, International Game Technology gaming solutions anticipate the demands of consumers wherever they decide to play. The company has a well-established local presence and relationships with governments and regulators in more than 100 countries around the world, and it creates value by adhering to the highest standards of service, integrity and responsibility.
Jefferies team has a Buy rating and a $34 price target. The consensus target is $33.67, and the stock closed on Monday at $26.79.
Penn National Gaming
This company made a huge Las Vegas purchase in 2016 to bolster its gaming portfolio. Penn National Gaming Inc. (NASDAQ: PENN) owns, operates or has ownership interests in gaming and racing facilities and video gaming terminal operations, with a focus on slot machine entertainment.
As of December 31, 2017, the company operated 29 facilities in 17 jurisdictions, including California, Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario, Canada. As of December 31, 2017, in aggregate, Penn National Gaming operated approximately 36,700 gaming machines, 820 table games and 4,800 hotel rooms.
Shareholders receive a 3.04% dividend. The $37 Jefferies price target on the Buy-rated stock compares with the consensus target of $33.50. Shares closed Monday at $26.76.
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Scientific Games
This is another play on the technology side of the sports betting potential. Scientific Games Inc. (NASDAQ: SGMS) is a leading gaming and lottery technology manufacturer. Offerings include 1) instant tickets and draw-based lottery games and systems, 2) electronic gaming machines, game content and systems, 3) table games products, and 4) social, mobile and interactive content and services.
As part of its transformation from a lottery-focused company, the company completed its $5.1 billion acquisition of Bally Technologies in November 2014 and its $1.6 billion acquisition of WMS Industries in October 2013.
Last month the company presented strong quarterly results that came in at the high-end of preannounced results, with all segments reporting positive outlooks. Top analysts see Scientific Games as a key beneficiary of increasing slot machine spending by operators.
The Jefferies Buy rating comes with a $57 price target. The consensus target is $51.67, and the stock closed at $435.65.
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With the distinct possibility for change in the sports betting world, it makes sense to hop on board some of these top companies now. While not suitable for all investors, growth accounts with a higher risk tolerance should take a long look now.
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