Casinos & Hotels
Why Gambling and Casino Stocks May Be 2018's Best Bet Now
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Worried about tariffs? Is the U.S. economy poised for a recession in 2019? Are the red-hot FANG stocks due for a huge correction? While there are plenty of reasons to be worried for the summer and the rest of 2018 for sure, one industry got a huge lift recently when the U.S. Supreme Court ruled in the favor of individual states on a case involving the constitutionality defined by a 1992 law, the Professional and Amateur Sports Protection Act, which prohibited states other than Nevada and Delaware from operating sports betting.
With sports gambling now legal in all 50 states, that may open the floodgates for state governments that sorely need additional revenues. Needless to say, some of the top stocks look like they will be big beneficiaries. For growth investors who have grown weary of the constant market tug-of-war, this could be a great place to look for ideas.
Deutsche Bank has been out in front of the potential for the changes in the sports gaming laws, so we scanned the firm’s universe of Buy-rated stocks and found five that look like solid ideas.
Boyd Gaming
This top company remains a Wall Street favorite. Boyd Gaming Corp. (NYSE: BYD) operates as a multi-jurisdictional gaming company through three segments: Las Vegas Locals, Downtown Las Vegas and Midwest and South. The company owns and operates gaming entertainment properties located in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.
The company also owns and operates a travel agency and a captive insurance company that underwrites travel-related insurance in Hawaii. As of December 31, 2017, the company owned and operated 24 gaming entertainment properties, offering a total of 1,358,856 square feet of casino space, 30,267 slot machines, 632 table games and 9,372 hotel rooms.
Boyd remains a favorite for Las Vegas locals and is substantially levered to the Las Vegas market. The company generally targets largely locals in this market. The company’s downtown properties also draw Hawaiian tourists. In general, Las Vegas locals performance is less impacted by weekends versus weekdays in a period than other gaming markets would be, as a substantial portion of the local economy works in hospitality.
Investors are paid a 0.53% dividend. The Deutsche Bank price target for the shares is $44, and the Wall Street consensus target is $36.06. The shares closed Thursday at $37.75.
Eldorado Resorts
This company has a diverse property portfolio, with casinos and resort stretched across the country. Eldorado Resorts Inc. (NYSE: ERI) is a gaming and hospitality company that owns and operates gaming facilities located in Ohio, Louisiana, Nevada, Pennsylvania and West Virginia.
Eldorado Resorts owns and operates approximately 503,000 square feet of casino space with approximately 20,000 slot machines and video lottery terminals, over 550 table and poker games, 45 restaurants and 6,500 hotel rooms. As of December 31, 2016, the company owned and operated various properties, including Eldorado Resort Casino Reno (Eldorado Reno), Silver Legacy Resort Casino (Silver Legacy), Circus Circus Reno (Circus Reno), Eldorado Resort Casino Shreveport (Eldorado Shreveport), Mountaineer Casino, Racetrack & Resort (Mountaineer), Presque Isle Downs & Casino (Presque Isle Downs) and Eldorado Gaming Scioto Downs.
The company also reported a strong quarter, with EBITDA growth and cost savings being among the highlights for investors. Many analysts cite the casino’s proximity to the red-hot Reno and Blackhawk markets as a big positive.
Deutsche Bank has a $48 price objective, and the posted consensus target is $49.11. The stock closed Thursday at $45.20.
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.
Deutsche Bank has set its price target at $37. The consensus target is $36.00, and the shares closed Thursday at $34.08.
Red Rock Resorts
This is another company that focuses on the lucrative Las Vegas locals market. While Red Rock Resorts Inc.(NASDAQ: RRR) is a leading casino operator that primarily operates in the Las Vegas, it also manages two Native American tribal facilities, in northern California and western Michigan.
The company operates 19 casino and entertainment properties in the Las Vegas locals market. In May 2016, Red Rock announced an agreement to acquire the Palms Hotel and Casino in Las Vegas for $312.5 million. The company’s solid presence in Las Vegas helped drive very solid overall results, despite a messy fourth quarter in which EBITDA came in below expectations.
Investors receive a 1.16% dividend. The $39 Deutsche Bank price target compares with the consensus target of $36.45. The shares closed Thursday at $34.44.
Wynn Resorts
This top company saw the departure of its namesake founder earlier this year. Wynn Resorts Ltd. (NASDAQ: WYNN) operates Wynn Macau and Encore at Wynn Macau resort located in the People’s Republic of China.
The Macau resorts feature approximately 284,000 square feet of casino space, which offers 24-hour gaming and a range of games, with 458 table games and 708 slot machines, private gaming salons, sky casinos and a poker. Its two luxury hotel towers have a total of 1,008 guest rooms and suites, as well as casual and fine dining in eight restaurants, approximately 57,000 square feet of retail shopping in stores and boutiques, approximately 31,000 square feet of space for lounges and meeting facilities, and the Rotunda show. Recreation and leisure facilities include two health clubs, spas, a salon and a pool.
The company also owns and operates the Wynn Las Vegas and Encore at Wynn Las Vegas resorts, with a total of 4,748 hotel rooms, suites, and villas; 232 table games; 1,866 slot machines; a race and sportsbook and poker room in approximately 186,000 square feet of casino gaming space, including a sky casino and private gaming salons.
Wynn shareholders are paid a 1.53% dividend. Deutsche Bank has a $219 price target. The consensus price objective was last seen at $213.50, and the shares closed most recently at $196.01.
These are five outstanding stocks for investors to add to portfolios for a gaming and lodging presence. It should be noted the sector is very cyclical, and downturns in the economy tend to hit the shares harder than most. With that in mind, they all look poised for a solid lift from the changes in sports gambling, and that’s when investors could see some big gains from the gaming industry.
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