Casinos & Hotels

Stifel Out With Top Gaming and Leisure Picks for 2019

Lee Jackson

Published: January 14, 2019 7:36 am

Last Updated: January 31, 2020 2:06 am

There is one good thing about an aging U.S. population for many top companies. While some are indeed working longer, tens of thousands of baby boomers hang it up for good every week, and they are ready for some fun after 40 to 50 years of professional or blue-collar careers. One common thread with many of those retiring is they are ready to travel and to spend some of their hard-earned retirement, pension or savings to do so.

In a new report, the gaming and leisure team at Stifel looks across the board for companies that may not only benefit from this trend but fit into the firm’s narrative for how 2019 may play out for investors.

The Stifel report noted this:

Given the elevated volatility in global financial markets and an increasingly unsettled global geopolitical picture, we believe we should expect the unexpected in 2019 across the gaming and leisure sector. With that as a backdrop, we favor three types of businesses in 2019: (1.) Those with no or limited exposure to consumers residing outside of North America; (2.) Those boasting the unique combination of blue chip assets, superior balance sheet flexibility and a favorable long-term growth outlook; and (3.) Those positioned to derive an outsized benefit from company-specific strategic growth initiatives.

While the firm doesn’t specifically address the population demographics per se, it’s a good bet that in addition to the people who would flock to some of their top picks, the seniors will play a big part. Here are four of the top five Stifel picks for 2019. We skipped the gaming equipment selection.

Boyd Gaming

This top company remains a Wall Street favorite, and Stifel just upgraded the shares to Buy from Hold. 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 affected by weekends versus weekdays in a period than other gaming markets would be, as a substantial portion of the local economy works in hospitality.

The stock was hammered near the end of 2018, and the analysts said:

Broadly speaking, we believe the sharp selloff across the regional operator group over the final weeks of 2018 on seemingly no change in underlying operating fundamentals has created a unique opportunity for investors to put new money to work in the names.

Stifel has a $33 price target, and the consensus target is $37.91. The shares closed at $26.24 on Friday.

Las Vegas Sands

While the gaming industry has had a somewhat tough year due to earlier issues in Macau, this stock has hung in reasonably well and is the top large-cap pick at Stifel. Las Vegas Sands Corp. (NYSE: LVS) is a leading hotel, gaming and resort development company that owns the Venetian Resort, the Palazzo and the Sands Expo Convention Center in Las Vegas, and Sands Bethlehem in Pennsylvania. The company also owns the Sands Macao, Venetian Macao, Four Seasons Macao, Parisian and Sands Cotai Central in Macau, as well as Marina Bay Sands in Singapore.

The company, founded 31 years ago, receives 90% of its earnings from Asia and generates 30% of revenue from its casino operations. And while the Macau revenue jumped for 2018, worries about a slower Chinese economy kept pressure on the shares. The Stifel report said this:

Although ongoing US/China trade negotiations and an unsettled global geopolitical picture could work against the shares in the near term, we see nothing out there at this point capable of tempering our long term enthusiasm on the name. We believe Las Vegas Sands unrivaled scale and investments for the future position its Macau business to remain a leader in the world’s premiere gaming market for the foreseeable future.

Las Vegas Sands investors receive a 5.27% dividend. The $72 Stifel price target compares with a $66.14 consensus. The stock closed most recently at $56.96.

Norwegian Cruise Line

This stock has sold off recently and is the top pick overall at Stifel. Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) is the world’s third-largest cruise company, and it owns and operates Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises.

The company acquired Prestige Cruise Holdings, the parent company for Oceania and Regent Seven Seas Cruises, in 2014 to diversify into the premium and luxury segments of the market and expand its global footprint. Today, Norwegian has 25 ships across all three brands and offers itineraries to more than 510 destinations.

Stifel noted this about the company:

We are establishing the company as our top overall idea for 2019 as we believe the current ~7x 20 estimated price to earnings multiple fails to reflect the company’s solid booked position for 2019, relative underexposure to the weakening European consumer, the recent removal of its IPO sponsor ownership overhang, a steadily improving balance sheet, and the potential for a dividend initiation later this year. Despite what the recent volatility in the share price might suggest, we are unable to identify anything in the company’s current operating trends or future demand indicators that suggests a recession is imminent.

The Stifel price target for the shares is $71, and the Wall Street consensus target is $64. Shares closed trading on Friday at $46.19.

SeaWorld Entertainment

While this company has changed the way it does shows, the parks remain a prime tourist attraction, and this is the top leisure pick at Stifel. SeaWorld Entertainment Inc. (NASDAQ: SEAS) is a leading theme park company that delivers family-oriented entertainment through a diversified array of offerings and a focus on animal interaction and education.

The company owns and operates 11 theme parks in the United States, which attract more than 20 million visitors annually. Key brands include SeaWorld (with parks in Florida, California and Texas), Busch Gardens (Florida and Virginia) and Sesame Place (Pennsylvania). Flanker brands include Discovery Cove (Florida), Aquatica (Florida, California and Texas), Adventure Island (Florida) and Water Country USA (Virginia).

The stock has been hit hard after a big 2018. Stifel team noted this:

Although we continue to like the setup in the shares for 2019, we fully acknowledge the setup today is a lot different than twelve months ago. With that said, we continue to see ample room for improvement in both revenues and margins that should accelerate the rate of EBITDA growth and, subsequently, trigger further expansion in the trading multiple.

Stifel has set its price objective at $37. The consensus target price is $29.75, and shares ended last week at $25.04.

Despite the tremors felt in the markets over the fourth quarter, and the jitters that remain in 2019, the economy remains solid, people are making more at their jobs and sentiment is still very positive. These four top picks are great additions to growth portfolios with a longer time horizon.