Online Gambling Stocks To Buy
Sports Betting: 4 Stocks To Bet On. Analysts at Bank of America/Merrill Lynch expect Caesars to benefit from online gaming in New Jersey and online and land-based gaming in Pennsylvania, both. It’s no secret anymore that gaming, or esports, is big business and that trend should continue in 2020. That said, investors should keep gaming-focused ETFs on their watch lists for the new year.
- Internet Gambling Stocks To Buy
- Best Online Gambling Stocks To Invest In
- Online Gambling Stocks To Invest In
Updated on September 14th, 2020 by Bob Ciura
As the saying goes, the house always wins. Casinos operate strong business models, as casinos earn a virtually guaranteed profit from the sum of the bets they receive. The relatively attractive economics of casinos make the industry worthy of a closer look.
Investors may be particularly intrigued by the earnings growth and dividends of the major casino stocks. The 4 major publicly-traded casino stocks all pay dividends to shareholders, but they are far from the safest dividend stocks around.
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Casinos are not without a fair amount of risk. Casinos are highly vulnerable to recessions, as consumers typically cut back heavily on gaming when the economy enters a downturn. The four major casino stocks saw their earnings collapse during the Great Recession. A similar impact has taken place to start 2020 due to the coronavirus crisis, which has battered the casino industry.
We have analyzed the major casino stocks in the Sure Analysis Research Database, which ranks stocks based upon the combination of their dividend yield, earnings-per-share growth potential and valuation to compute expected total returns. In this article, we will compare the expected 5-year total annual returns of the four major casino stocks.
Table Of Contents
For this article, stocks are ranked in order of least attractive to most attractive. While 5-year expected returns are incorporated in the rankings, we have also utilized a qualitative screen based on balance sheet strength and overall business quality.
You can instantly jump to a particular section of the article using the links below:
Casino Industry Overview
The casino industry is in severe distress right now. The spreading coronavirus and resulting global recession have taken their toll on the casino stocks. The large U.S. casinos are heavily reliant on Macau, the largest gaming market in the world and the only market in China where casinos are legal. As a result, these stocks are very sensitive to any developments that affect the gaming activity in Macau.
This was a significant concern several years ago. In 2014, China initiated an anti-corruption regulatory crackdown, which greatly reduced the gaming activity in the area. Fortunately for the casinos, the downturn lasted for approximately two years and gaming activity in Macau recovered thereafter. Then the gaming activity in Macau faced another headwind, namely the trade war between the U.S. and China.
This headwind lasted for only about a year but now Macau is facing its strongest challenge ever, the outbreak of coronavirus, which has caused a huge hit in the gaming business. Casinos were shut down for an extended period due to the coronavirus. Visa restrictions have also added to the decline in gaming activity in Macau.
As a result, gross gaming revenue in Macau plunged 94.5% in August, compared with the same month last year. Gross gaming revenue in Macau declined 81.6% through the first eight months of 2020. The high sensitivity of casino stocks to all the developments related to China and their pronounced cyclicality means that investors should pick casino stocks carefully.
Top Casino Stock #4: Wynn Resorts (WYNN)
Wynn Resorts owns and operates Wynn Macau and the Wynn Palace in Macau, as well as Wynn Las Vegas and Encore in Las Vegas. Since Wynn Resorts is highly leveraged to the gaming activity in Macau, it saw its earnings collapse and it cut its dividend by 62% in 2015-2016 due to the Macau downturn that was caused by the anti-corruption regulatory crackdown in the area. But as Macau strongly recovered in the last three years, Wynn Resorts returned to growth.
Unfortunately, the company is now facing the headwind of coronavirus in all the regions in which it operates. Wynn Resorts reported earnings results for the second quarter on 8/4/2020. Revenue declined 95% year-over-year to $85.7 million, which was $190 million less than expected. The company lost $6.14 per share in the quarter, missing estimates by $1.23. Adjusted property EBITDA was a loss of $322.9 million compared to estimates of a loss of $314 million. This compared unfavorably to adjusted EBITDA of $480.6 million in the second quarter of 2019.
Results for Wynn Resorts were once again severely impacted by the COVID-19 pandemic as properties in Macau were closed for 15 days. Las Vegas operations didn’t open until June 4th.Wynn Palace revenues declined 98.6% as a result. Revenues for Wynn Macau decreased 97.8% while Las Vegas decreased 86% year-over-year. Wynn Resorts suspended its dividend in an effort to conserve capital. Consensus estimates call for a loss of $11.52 per share for 2020.
On the bright side, casinos are gradually reopening, and Wynn Resorts seems to have ample room to grow in the upcoming years thanks to its promising growth pipeline.
Source: Investor Presentation
The company has made progress in the design of Crystal Pavilion in Macau, which will be a major tourist attraction. In addition, Encore Boston Harbor opened in June-2019 and has exhibited strong performance so far so it has promising growth prospects ahead thanks to expected ramp-up in activity.
Moreover, the company has been caught off guard, with total current and long-term debt outstanding of $12.78 billion and cash and cash equivalents of $3.80 billion. Therefore, the stock is carrying an increased amount of risk right now due to its high level of debt.
However, we believe that the coronavirus crisis will not last beyond this year and we view the long-term growth prospects of the company as intact. We expect 4% annual EPS growth through 2025. Using the company’s current assets, return on assets of 5.6% over the last decade and share count, we believe Wynn Resorts has earnings power of $1.89. We will use this figure to calculate fair value and projected return.
Based off of the earnings power estimate for 2020, the stock is currently trading at a P/E ratio of 44, which is higher than its historical average of 30.1. However, the stock traded at abnormally high P/E ratios in some years due to depressed earnings in those years.
For instance, the abnormally rich valuation of the stock during 2015-2017 resulted from the market’s view that the downturn in Macau was temporary. Our target P/E ratio of 18 reflects uncertainty regarding Macau and the coronavirus. If shares reverted to our target P/E by 2025, then valuation would be a 16% headwind to annual returns over this time period.
If the stock reaches our fair valuation level over the next five years, it would reduce shareholder returns by 16%, effectively wiping out earnings growth and dividends over that time period. The stock is markedly volatile due to its high debt load, which is an added risk factor.
As a result, only those who can stomach extreme stock price volatility and have confidence in the ability of Wynn Resorts to navigate through the current crisis should consider buying the stock.
Top Casino Stock #3: MGM Resorts (MGM)
MGM Resorts owns and operates casinos, hotels and conference halls in the U.S. and China. The company has the least exposure to Macau in this group of stocks. As a result, it suffered much less than its peers from the trade war between the U.S. and China and the protests of people in Macau a few months ago.
However, the company is highly exposed to the outbreak of coronavirus, just like its peers. Due to the rapid spread of the coronavirus, MGM Resorts suspended all its casino operations in Las Vegas on March 16th and did not accept hotel reservations for the dates prior to May 1st. The company also closed its casino in Maryland.
In late July, MGM Resorts reported (7/30/20) financial results for the second quarter of fiscal 2020. The company began reopening its U.S.properties in the quarter but its revenue plunged -91% over last year’s quarter due to the suspension of the operations of the company in the U.S. and a collapse in gaming revenues in Macau caused by travel restrictions and social distancing.
Source: Investor Presentation
As a result, MGM Resorts switched from a profit of $0.23 per share in last year’s quarter to an adjusted loss of -$1.52 per share.
Due to the unprecedented downturn that has resulted from the pandemic, MGM Resorts cut its dividend by 98% in April. Moreover, in May, it issued $750 million of 5-year bonds at 6.750%. The high interest rate reflects the desperation of the company for funds and the high debt load of the company. Net debt is $20.0 billion, which is nearly twice the current market cap of the stock.
On the positive side, on August 20th, 2020, IAC (IAC) reported a 12% stake in MGM Resorts for approximately $1 billion. IAC has a portfolio of brands and digital expertise, which is expected to help MGM Resorts leverage its digital assets. IAC will join the Board of Directors of MGM Resorts. The stock jumped 12% on the announcement.
Nevertheless, due to the headwind of coronavirus, along with a huge debt load, shareholders should not expect a material boost in dividends and share repurchases for the foreseeable future. That said, the company has a positive long-term outlook for conventions and sports betting in the domestic market, as well as the ramp-up of the recently-built MGM Cotai resort, MGM Springfield, and Park MGM.
As soon as the coronavirus crisis comes to an end, MGM Resorts will benefit from these growth drivers. The company will also enhance its earnings growth via its initiative “MGM 2020”, which aims to expand margins by reducing operating costs and enhancing the efficiency of the company.
Due to the headwind from coronavirus, we expect MGM Resorts to report a net loss in 2020. Earnings-per-share are expected to gradually turn positive, with expected annual growth of 5% through 2025. After the massive dividend reduction, returns from dividends will be negligible until the full dividend is restored. Finally, a contracting valuation multiple could be an additional headwind for shareholders. Overall, we expect negative total returns in the mid-single-digits over the next five years.
Top Casino Stock #2: Melco Resorts (MLCO)
Melco Resorts owns and operates casino gaming and entertainment casino resort facilities in Asia. As Melco Resorts is the most leveraged to the gaming activity in Macau in this group of stocks, it is the most vulnerable company to the downturn in the area due to the outbreak of coronavirus.
Melco Resorts will greatly benefit as the US slowly returns to a more ‘normal’ level of activity as COVID-19 fears and cases hopefully decline. A COVID-19 vaccine would likely be a major boost for the company.
In 2019, Melco Resorts grew its revenue 11% and its earnings per share 15%, primarily thanks to its strong performance in the mass market table gaming activity. But conditions have predictably reversed, with second-quarter revenue declining 88% and adjusted property EBITDA declining to a loss of $156.3 million.
Source: Investor Presentation
As soon as the effect of coronavirus begins to fade, the company has promising growth prospects ahead. It will benefit from the ramp-up of activity in its Morpheus Resort, which opened in mid-2018, and attract an increasing number of visitors in Cotai thanks to improvements in mass transportation.
Melco Resorts is also expanding its City of Dreams in Macau and is taking steps to open an integrated resort in Yokohama, Japan. All these initiatives are likely to be significant growth drivers as soon as Macau returns to normal.
On the other hand, due to its extreme leverage to gaming activity in Macau, the stock is highly vulnerable to any negative development related to coronavirus. Therefore, despite the promising growth prospects, we hold modest expectations for Melco, due to its extreme leverage to the activity in Macau.
It is worth noting that the gaming activity in the area was facing another headwind, protests from civilians, before the outbreak of coronavirus. Overall, we expect 2% average annual growth in earnings per share over the next five years.
The company is expected to post a significant loss for 2020. Earnings-per-share are expected to recover to $0.11 in 2021 and $1.08 in 2022. In a normalized economic backdrop, this would mean the stock trades for a P/E ratio of approximately 18, based on 2022 earnings. We view the stock as fairly valued.
Therefore, shareholder returns will be fueled by earnings-per-share growth. The stock had a 4%+ yield recently, but the company has suspended its dividend for the foreseeable future in an effort to preserve cash. Therefore, total returns are expected at just ~2% per year until the dividend is restored.
Given its healthy balance sheet, the company is likely to resume paying dividends once the coronavirus crisis ends. On the other hand, income-oriented investors should remain cautious, as the company is highly vulnerable to economic downturns and is very sensitive to any casino-related policy change in China and the ongoing coronavirus crisis.
Top Casino Stock #1: Las Vegas Sands (LVS)
Las Vegas Sands is a leading developer and operator of integrated resorts in the U.S. and Asia. Due to the outbreak of coronavirus, Las Vegas Sands is facing strong headwinds in Macau and in the U.S. As mentioned above, gaming activity has collapsed in Macau. In addition, due to the propagation of the virus in the U.S., all the casinos in Las Vegas were closed for a considerable period. As a result, Las Vegas Sands will incur a significant hit to its earnings this year.
On the other hand, beyond this year, Las Vegas Sands has promising growth prospects ahead. As Japan legalized casino gambling three years ago, Las Vegas Sands has announced that it intends to open integrated resorts in Tokyo and Yokohama. The company is the favorite bidder in this contest, which is expected to be a significant growth driver, though it will take a few years until the company earns a license and builds its new properties in Japan.
Not only do we see potential for strong earnings growth along with a high dividend yield for this stock, Las Vegas Sands also earns the top ranking because of its strong balance sheet and healthy liquidity.
Source: Investor Presentation
Furthermore, Las Vegan Sands continues to pursue growth by expanding and upgrading its Macau properties. The company launched Four Seasons Tower Suites Macao last year and it expects to perform its grand opening this year while it also expects to launch the Londoner Macao within 2020-2021 and expand Marina Bay Sands in Singapore.
In addition, Las Vegas Sands will benefit from the debut of the light rail system connecting Macau to the entire China rail network. This project will significantly increase the traffic to the casinos in Macau. Thanks to all these growth drivers and given the suppressed earnings expected this year, we expect the company to grow its earnings per share by about 4% per year over the next five years.
Las Vegas Sands stock previously offered a hefty dividend of $3.08 per share annualized, but the company suspended its dividend in 2020 amid the coronavirus pandemic. If the company were to reinstate its dividend at the same level, shares would yield nearly 6% at the current stock price.
The company is expected to see earnings dry up in 2020; our estimate of its full earnings power in a normal economy is annual earnings-per-share of $3.20. Based on this, the stock has a price-to-earnings ratio of 16.6, which is lower than our fair value estimate of around 17.0. Therefore, we see Las Vegas Sands stock as the only undervalued casino stock.
We also believe Las Vegas Sands has the strongest balance sheet. This means it is likely that the company will easily navigate through the ongoing coronavirus crisis and will enjoy a strong recovery whenever the headwind disappears from the horizon.
Final Thoughts
Gaming activity in Macau enjoyed a strong recovery from 2017-2019. But the coronavirus pandemic brought the recovery to a halt. Macau is now facing another severe downturn, due to the outbreak. The same is true for the U.S. as well, as the coronavirus crisis has resulted in weak demand. As a result, all the above casino stocks are going through a fierce downturn right now.
Melco Resorts seems the least attractive choice whereas Las Vegas Sands has by far the most attractive risk/reward profile. Wynn Resorts and MGM Resorts offer a lower expected return than Las Vegas Sands. Additionally, we prefer Las Vegan Sands for its stronger balance sheet, which is paramount during severe downturns.
While we expect the coronavirus crisis to end later this year, no one is absolutely sure when this crisis will end. To provide a perspective for the severity of the downturn, all the U.S. casino companies asked Congress for emergency financial help, as several industries have been impacted by coronavirus. Certain gaming regions like Las Vegas are preparing to reopen, which would be a major positive step for the casinos.
That said, casino operators will likely see profits evaporate and report significant losses, at least for one quarter but potentially for 2020. There is also the potential for further dividend cuts or suspensions across the industry, if the crisis continues for the remainder of 2020.
It is thus critical for investors to make sure that their companies can easily endure a prolonged crisis without being devastated. Therefore, the superior balance sheet of Las Vegas Sands is a crucial parameter and helps explain the fact that the market has punished Las Vegas Sands much less than its peers in the ongoing downturn.
Allstar Gambling USA / News /The Supreme Court of the United States of America in a landmark judgment given in May 2018 declared that the Federal law that allowed gambling of legalized sports in the country no longer stands constitutional. It was held that the law is violative of the 10th amendment. It was now declared that gambling in sports could now only be sanctioned and approved by states and is not under the purview of the Federal Government. This only resulted in a predictable sports insurgency.
In October, New Jersey had over $250 million involved in betting and this was a significant increase in 41% on betting as compared to how it was just a month before. Many other states are following the same pattern as gambling in legal sports reaches a new high. These include The Garden State, New Mexico, Pennsylvania, Rhode Island, Delaware and Mississippi among others. It is predicted that by the year 2022, all around the world, sports fans will be having as much as $1 trillion invested in online betting per year.
Five gambling stocks with great potential in 2020
Given below are five gambling stocks that one should keep an eye on in regard to gambling in legalized sports.
1. MGM Resorts (NYSE:MGM)
Betting on a small scale in sports is considered unimportant and insignificant in Las Vegas, USA. This comes into picture when we compare blackjack gains of $1.24 billion to actual gains of $329.1 million as extracted from legal sports. However, the news is that the chief chain of casinos to prime timing. This major casino hand in the United States alone generated over $4 billion of revenue in the city of Vegas. However, it also has its working in the Atlantic City but it overtook a proportion of the Casino Empire in the city of New York. It now has a substantial mark in the betting arena of sports having a rank of $114 million which accounts to be 35% in the betting world. MGM holds a market grab of $13.5 billion. It is utilizing its monetary strength to turn around the sports world when it comes to betting. The casino major has introduced betting in sports in two casinos in the Mississippi and has finally emerged as the “authorized gaming counterpart” of the NBA.
MGM Resorts has finalized deals with the most significant and prime leagues of the country. These include basketball, hockey, and baseball at the professional level. The leagues permit MGM to cross-advertise the casinos belonging to the company and also promoting the app for sports betting. It is important that note that MGM has only been possible in regulating bets in states where the action was previously legal. Till now, the biggest reward lies with the National Football League. MGM presently has a great hold of success and plans of having Philadelphia Eagles and Pittsburgh Steelers involved in sports betting, following which each game will be a fair play.
2. BRAGG (BRAG. V BKDCF)
Internet Gambling Stocks To Buy
The BRAGG Gaming Group was earlier known as Breaking Data Corporation. It has onlookers as large as 31 million virtue of its media asset, Give me Sport (GMS). It even has an internet connected playing the stage that is famous worldwide and is known by the name, Oryx gaming. Through Oryx Gaming aims to influence the GMS viewers into gaining power and emerging as the biggest betting of sports gaming customer record on the planet. The path of online gambling gives surprising levels of profit. Studies show that the gross rewards in the market through gambling in 2018 were $46.7 billion. It is predicted that the amount will go up to $89 by the year 2025.
The Facebook profile of GMS has as much as 26 million active user accounts. If this data is compared with ESPN, we see that even a significant sports brand as ESPN has only 19 million users on its Facebook page while its total worth amounts $28 million. If we talk about Sky Bet, the property was just sold off for %5.7 billion and only had 819,000 people as its audience. This has only led Oryx Gaming Services to introduce a GMS in order to have only one platform focusing on Sports Betting. Once the OGS is launched online it will incorporate the OGS technology with GMS to bring out an amazing experience to all the BRAG’s users.
Today, it is noticeable that BRAGG has two key possessions GMS and Oryx. The former has had an increased revenue earning of over 400%. The per month traffic online has also added by more than 5 million and additional revenue growth of 30%. It is believed that that BRAGG can grab eyes of its possible audience; it can bring to large monetary gains to the company. It can even come out as an important success story of this year.
3. International Game Technology (NYSE:IGT)
After having an unsure revenue through the year where the company had a significant one-year increase of $31 to a decrease of $14 by November. It is only in December that the numbers found an equilibrium at $16. It has a market hold of $3.4 billion and 12,000 employees and is known to be a big company that produces a significant amount of casino playing equipment and machine for slots, more than any other company. But now the company is evolving and embracing betting in sports. Since IGT is a service provider it shall not have to worry about the risks of maintaining books of sports. It merely needs to complete the requirements of companies like MGM and infrastructural construction that help in encouraging sports.
In 2017, IGT was managing money worth $12 billion being used in sports betting. It is advisable for IGT to be safer so that safely all the bets are placed by potential investors in the year 2019. In July 2018, IGL claimed to have started a collaboration with the famous betting company FanDuel. As per the collaboration, IGT will be responsible for bringing FD’s ongoing betting mechanisms to markets in 15 states of the country. IGT will also launch PlayShot that will use FD’S consumer looking and waging technology and provide service to people who bet in sports. FD wishes to use the technology of the very famous IGT to establish a remarkable footing in the world of betting in sports. Hence, it is predicted that after an uneasy year, IGT’s hard work and luck will finally pay off in 2019.
4. BOYD Gaming Corporation (NYSE:BYD)
The company is a significant and huge casino regulator in the United States and is the owner of 29 gaming possessions in 10 states. It is coming out to be a big character when it comes to sports gambling.
The previous decade, Boyd has shown unusual skills that have contributed positively to the company. It has dealt with a lot of sports books in the City of Sin. Since betting is considered legal it is planning to expand to different regions and their markets.
The firm has also come into collaboration with MGM as per which they will be equal partners in online and offline (mobile) gambling mechanisms. MGM is proposing its poker and playing applications for 15 states under sportsbook of Boyd’s. The deal is unexpected and can be the start of a huge gaming monopoly together owned by Boyd and MGM. B’Connect is Boyd’s new application for gaming and is used in 3 casinos. It has also signed a work project with FanDuel and offered to lend out its gaming characteristics for FD’s mobile and internet-abled gambling services. The contract allows for Boyd to have authority over all the states where it possesses licenses for gaming, other than Nevada.
Best Online Gambling Stocks To Invest In
5. Marriot International (NASDAQ:MAR)
Marriot serves as the biggest hotel businesses in the world. The hotel brand has a lot of collaborations with casinos and is even partners with them. Presently, MGM and Boyd wish to collaborate with Marriot to use their customer turn out to their own advantage and attract extra business. Marriot is significant all over the country and has deals relating to license with JW Marriot Resort & Spa located in Las Vegas. Recently, after all the negative publicity the hotel chain is facing, the company gave a statement regarding the building of a casino and resort with 4000 rooms. The negative attraction due to scandalous reported a breach of data. But the company has been patient in moving forward and strategized well to come out and claim over the market all over again.
Another company expected to have increased growth since gaming starts again:
6. Millenial eSports Corporation (OTCQB:MLLLF)
It is a small-scale firm located in Toronto with its main focus on E-Sports and E-Gaming. The company works on all- creation of content, data analysis, media and broadcasting, and, tools for execution. The firm introduced analytics and intelligence in business items for industry relating to e-gaming. It has even started working on the preferences on Aston Martin and McLaren, Motorola G and Formula E which are mainly based on mobile gaming arena.
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