The gambling sector has performed exceedingly well of late. Domestic gambling stocks have soared, thanks to reduced debt and improved margins. As a result, those stocks are receiving multiples not seen since before the financial crisis.
U.S. companies operating in the Chinese enclave of Macau has seen growth return after a downturn in 2016. Even online gaming stocks in Europe are doing well, despite regulatory pressure and higher taxes in the U.K. and elsewhere.
It’s possible the sector could perform even better going forward. A Supreme Court decision has opened the door to sports betting in the U.S. and a strong economy is helping the industry. As are demographic trends, as a graying baby boom population heads right into the industry’s sweet spot.
There are some concerns surrounding valuation, as many gambling stocks have gained and trade near post-crisis, or all-time highs. Debt in the space is much higher than seen elsewhere in the market as well. But for investors bullish on the overall economy, the gaming sector offers an intriguing play.
The big rally in gambling stocks may not be done just yet — and these 20 stocks are potential beneficiaries if that’s the case.
20 Gambling Stocks: Las Vegas Sands (LVS)
Las Vegas Sands Corp. (NYSE:LVS) is the world’s biggest casino operator, and with a market cap of $62 billion, the world’s most valuable gaming company.
While the company is U.S.-based, and owns the Venetian and the Palazzo on the Las Vegas Strip, LVS is mostly an international play. Just 11% of property-level Ebitda in 2017 came from domestic operations — a figure that will drop to the single digits this year after the sale of Sands Bethlehem.
The key driver here is the company’s business in the Chinese enclave of Macau. Macau is the only territory in China where gambling is legalized and it’s the largest market in the world. The market’s $33 billion in revenue in 2017 was more than five times that generated by the Las Vegas Strip. And it drives over half of Las Vegas Sands’ profits, with operations in Singapore another major contributor.
Macau has bounced back after seeing revenue declines in 2016 amid regulatory pressure and LVS has done the same. Las Vegas Sands stock has more than doubled since early 2016. At 21x forward earnings, with years of growth likely ahead in Asia, plus a 3.8% yield, there’s still a bull case here.
20 Gambling Stocks: Wynn Resorts (WYNN)
Wynn Resorts, Limited (NASDAQ:WYNN) has had an eventful 2018, to say the least. The year started well, with WYNN continuing an almost uninterrupted two-year bull run that led shares to more than triple from early 2016 lows. A strong Q4 report in January seemed to confirm that all was well. Baccarat has rebounded on the Strip, Wynn is taking market share in Macau, and its new property in Massachusetts opens next year.
But the company’s founder, Steve Wynn, would be accused of sexual misconduct and resign less than two weeks later. WYNN shares have rebounded after plunging on the initial CEO news — but this still feels a bit like a wounded company. Rumors have swirled that LVS might try and buy Wynn out.
The property in Massachusetts is being renamed. And a company now lacks a founder whose legendary attention to detail extends to every tile and every flower in each of his properties.
Meanwhile, like LVS, Wynn is heavily reliant on Asia, with about three-quarters of its profit coming from Macau. But Wynn has a lower share in that market, and new competition is coming online next year. With WYNN at its highest levels in almost four years, and facing near-term resistance around $200, investors seem rather sanguine about the myriad challenges facing the company.
20 Gambling Stocks: Caesars Entertainment (CZR)
On the other hand, Caesars Entertainment Corporation (NASDAQ:CZR) seems to have finally put its problems behind it … hopefully. The largest casino operator in the U.S., Caesars went private in 2008 at the peak of the market in a leveraged buyout led by TPG Capital and Apollo Global Management (NYSE:APO). Quickly, it became apparent that the deal was a disaster; in barely a year the U.S. was in the throes of the financial crisis.
TPG and Apollo took Caesars back to the public markets in 2012, offering a small slice of shares. And over the next six years, the company would battle its bondholders, spin off Caesars’ Interactive division, bring the interactive business back into the fold, sell its social gaming unit, and send its operating company into bankruptcy (to name just a few of its moves).
The endless movement was designed to preserve some value in the equity of a company that looked functionally bankrupt. And with much of that debt exchanged for stock and the real estate now spun off into a REIT — Vici Properties Inc (NYSE:VICI) — it looks like it might have worked. Caesars has a market cap of about $9 billion, and CZR stock has risen almost 40% from its IPO price.
The company isn’t out of the woods, however. The debt load remains substantial. Its properties, particularly outside of Las Vegas, still need quite a bit of catch-up maintenance. And domestic rivals are getting larger and more aggressive. But Caesars has at least salvaged some value out of what could have been one of the worst acquisitions ever.
With its heavy debt load and room for improvement, CZR looks like the highest-reward play in U.S. gaming and even after all the moves, the highest-risk play as well.
20 Gambling Stocks: Full House Resorts (FLL)
While Caesars is the largest U.S. operator, Full House Resorts, Inc. (NASDAQ:FLL) is one of the smallest. But it, too, has had an eventful few years.
Back in 2014, Full House looked like it was in big trouble. The small regional operator had acquired a casino in Indiana, Rising Star, just before legalization in Ohio sent business tumbling. The company then agreed to buy another property in Tunica, Mississippi — a market struggling so badly that three days later Caesars would simply close its Harrah’s Tunica. Shareholders revolted, and an activist effort began. Full House escaped the deal, and long-time gaming executive Dan Lee came on as CEO in late 2014.
Since then, the $90 million market cap FLL has developed a solid individual investor base and the stock has more than doubled. The acquisition of Bronco Billy’s in Colorado Springs, which is to be expanded over the next few years, adds another valuable property to the flagship Silver Slipper in Mississippi. The company is investing in other portfolio holdings in Lake Tahoe, northern Nevada, and at Rising Star (including putting in a ferry). A heavy load of high-interest debt has been refinanced, boosting cash flow going forward.
Growth has been tough to come by, and from here it does like FLL stock is performing better than the company itself. But there’s still an intriguing long-term plan — and a successful CEO highly incentivized to sell the company once that plan is complete.
Price is a concern, but Full House can create a lot more value if all goes well.
20 Gambling Stocks: Scientific Games (SGMS)
Back in 2013, Scientific Games Corp (NASDAQ:SGMS) was a sleepy provider of lottery services — both terminals and instant scratch cards — to U.S. states and overseas government customers. That changed quickly, however.
That year, SciGames acquired struggling slot machine manufacturer WMS Industries. The next year, it acquired WMS’ larger rival Bally Technologies — not long after Bally had acquired equipment and table game maker SHFL Entertainment. Suddenly, Scientific Games was the largest and most diversified gaming supplier in the world.
And at first, that didn’t look a good thing. SGMS would hit an eleven-year low in early 2016, as concerns about its massive debt weighed on the stock. The strategy of merging the disparate businesses was based on the idea of “convergence”: that an expansion of online gambling would lead casino customers to be able to gamble any time, anywhere. Hence, SciGames needed Bally’s back-end gaming systems, and WMS slots, and SHFL games like Three Card Poker to provide a ‘one stop shop’ for its customers.
But without online gaming, and with those customers cutting costs, SciGames’ growth looked relatively minimal and certainly not enough to repay the massive debt load incurred during the roll-up. At one point in 2015, some of the company’s bonds traded for as little as 40 cents on the dollar.
That risk still exists but growth has improved, as has margins, and performance has been “good enough” so far. SGMS stock has soared, rising 7x from those early 2016 lows and 150% over the past year.
And given the debt, there’s still room for more upside if progress continues. This remains a high-risk, high-reward play, as I wrote last year. But at least in the case of SciGames, investors are buying the market leader — and a company that customers, at this point, would struggle to live without.
20 Gambling Stocks: Everi Holdings (EVRI)
Everi Holdings Inc (NYSE:EVRI) is a smaller, simpler version of Scientific Games. The company formerly was named Global Cash Access, and it installed ATMs and managed credit activities for casinos. In 2014, it too made a big (and debt-funded) acquisition, buying slot manufacturer Multimedia Games.
Multimedia Games had focused largely on machines for tribal casinos, mostly in Oklahoma, which are slightly different than Vegas-style slots. The so-called “Class II” machines are based on bingo to satisfy federal law. Part of the strategy of the tie-up was that Global Cash Access could quickly expand Multimedia Games’ business beyond the tribal market, in large part by accelerating the very difficult process of becoming licensed in additional states.
Like at SciGames, the results have been mixed. EVRI shares, too, tanked in 2016, and its debt traded at a significant discount. But results of late have improved and rose from $1 to over $7 before settling in over the past few months.
Longer term, the story here still has yet to play out. Multimedia Games appears to have underperformed somewhat; it’s actually the legacy business that has surprised. And so there is more upside here — particularly if Everi can accelerate growth in coming quarters.
20 Gambling Stocks: Eldorado Resorts (ERI)
Amid all the movement in the gaming space over the past few years, no company has more transformed itself than Eldorado Resorts Inc (NASDAQ:ERI). Just five years ago, Eldorado owned three properties: two in Reno, Nevada and one in Shreveport, Louisiana. ERI stock traded for under $5 and didn’t trade much.
But the company has bulked up — quickly. In 2014, it merged with MTR Gaming, who owned three properties in the eastern half of the U.S. – and had a ton of debt. The larger asset base allowed that debt to be refinanced — and ERI soared soon after the deal. It then added a third property in Reno, giving it a strong presence downtown. As employers like Apple Inc. (NASDAQ:AAPL) moved into the area, and the Tesla Inc (NASDAQ:TSLA) gigafactory was built outside the city, Reno became a ‘hot’ market. More investors poured into the stock.
Eldorado wasn’t done. It took out regional operator Isle of Capri last year, and recently announced the addition of two more properties, one outside Chicago and one in Atlantic City (through its acquisition of Tropicana Entertainment Inc (OTCMKTS:TPCA)). The latter deal, too, looks timed perfectly, as it gives the company exposure to sports betting in the key New Jersey market. The company will have 20 properties once these deals, and the sale of two small properties, are complete.
There’s been a lot of good news here, and ERI continues to climb, rising 31% year-to-date. But as I wrote a few months back, I still question how much juice Eldorado has left. Valuation is getting a bit stretched, and organic growth actually has been somewhat disappointing. I certainly wouldn’t bet against ERI after the past few years, but at some point the company’s luck might just run out.
20 Gambling Stocks: Churchill Downs (CHDN)
Churchill Downs, Inc. (NASDAQ:CHDN) is another gaming stock with a lot of good news and a lot of good news priced in. The company continues to grow profits from the Kentucky Derby by creating more and more high-end (and high-dollar) amenities. It’s built out its casino business through acquisitions, including a deal to pick up two casinos from Eldorado Resorts.
That deal put CHDN into the Pennsylvania market, and an agreement with the privately held Golden Nugget gives it access to New Jersey as well. Both states should be first movers on online sports betting — and Churchill Downs’ successful TwinSpires online horse racing business could give it a head start in both markets in terms of both technology and customers.
Still, CHDN looks awfully expensive from here, although I’ve said that before and have been wrong. And there is a lot of growth potential here, both from organic improvements at the company’s track and casinos and from inorganic developments like M&A and sports betting.
For investors bullish on sports betting and the space as a whole, CHDN might be worth paying up for.
20 Gambling Stocks: Gaming Partners International (GPIC)
Gaming Partners International Corp. (NASDAQ:GPIC) has been one of the few stocks left out of the gaming rally. The small-cap manufacturer of casino chips and playing cards, among other supplies, is trading near its lowest level in almost three years.
An expansion of its playing card manufacturing capacity has caused some short-term disruption, and a slower pace of new openings has led to muted growth in casino currency sales.
But all hope isn’t lost here. GPIC is cheap and has a cash-rich balance sheet. A sale to Scientific Games makes sense at some point, even if controlled family ownership means a sale is unlikely any time soon.
GPIC isn’t the flashiest stock in the industry, but if it can turn around it, too, could join back in the sector’s gains.
20 Gambling Stocks: MGM Resorts International (MGM)
MGM Resorts International (NYSE:MGM) hasn’t performed badly by any means. MGM has risen steadily since the financial crisis, and nearly doubled from early 2016 lows.
Still, MGM’s performance feels a bit disappointing in the context of the industry. Over the past year, MGM is flat, while ERI has more than doubled, WYNN has gained 54%, and LVS has risen 37%.
There’s a sense that MGM isn’t really winning anywhere. Investors playing the Las Vegas Strip look to CZR. MGM has the lowest market share in Macau, by a good measure, leaving WYNN and LVS seemingly more attractive.
But I do think MGM is due for a rally — particularly if the industry as a whole continues to show strength. A new property in Macau is coming online in 2019. The National Harbor property outside D.C. looks like a success. And MGM looks rather cheap, particularly in the context of peers in China and the U.S.
A recently announced strike presents a potential near-term headwind, but any dip in MGM toward $30 looks like a potential buying opportunity.
20 Gambling Stocks: Penn National Gaming (PENN)
If an investor wants to make the argument that the gaming sector — and maybe the market as a whole — is too overheated, Penn National Gaming, Inc (NASDAQ:PENN) is a good place to start.
After all, history shows that M&A usually ramps up near a market top – particularly in the gambling industry. 2006-2007 saw both the Caesars deal and a go-private offer for Penn — a deal that was so bad the buyers spent billions escaping it as the market plunged in 2008.
Meanwhile, Penn has spun off its real estate into a REIT to pay a special dividend, adding to its leverage. It’s buying fellow operator Pinnacle Entertainment Inc (NASDAQ:PNK) as regional casino consolidation continues. And yet investors are focusing on the inorganic moves – and ignoring the fact that the company’s performance really hasn’t been that impressive of late.
The argument for these regional casino mergers generally comes down to cost-cutting, though Penn’s acquisition of the Tropicana in Las Vegas was supposed to give it a tourist offering for its local customers as well. But regional casinos, at this point, are a low-growth business, and one subject to a great deal of macro risk.
Investors are backing Penn’s moves so far — the stock is up 78% over the past year — but if the economy stumbles at the wrong time, Penn could re-learn the lesson of 2008.
20 Gambling Stocks: Gaming & Leisure Properties (GLPI)
Gaming and Leisure Properties Inc (NASDAQ:GLPI) began as the REIT spun off by Penn National back in 2013. But it continues to add to its portfolio.
It picked up Pinnacle’s real estate assets before the Penn-Pinnacle merger was announced. It’s adding two more from the merger itself (one from each company). It will take the Tropicana in Atlantic City as well, helping to fund Eldorado’s acquisition of that business.
GLPI hasn’t performed as well as the space as a whole: the stock is basically flat since the beginning of 2014, and down from its post-spin price. But that’s not a surprise, given its relatively fixed revenue streams from leasing its properties to Penn, Pinnacle, and now Eldorado.
What GLPI does offer is an attractive yield over 7% — one reason why I highlighted it as one of 10 dividend stocks to buy back in December. After the recent moves, I still think that’s the case, particularly with the shares of many of its tenants looking a bit stretched.
GLPI was a pioneer in the space — its strategy has been mimicked by Caesars spin-off Vici and by MGM Growth Properties LLC (NYSE:MGP) but, for now, I think the original is still the best.
20 Gambling Stocks: Melco Resorts & Entertainment (MLCO)
Melco Resorts & Entertainment Ltd(ADR) (NASDAQ:MLCO) is an Asia pure-play. The company operates three properties in Macau, along with the City of Dreams in the Philippines.
In Macau, in particular, Melco focuses on the “premium mass” segment. These gamblers generally aren’t quite the high-rollers targeted by Wynn in particular, but they don’t require the ‘junkets’ needed for so-called VIP gamblers.
Macau’s recent — and somewhat surprising — growth has been driven by both VIP and mass market. But the VIP market always is at risk of a regulatory change (like the ones that sent the market shrinking, and stocks tumbling, back in 2015).
The bull case for MLCO is that the mass market, particularly on the high end, will be a better market going forward. If that’s the case, MLCO might be a better buy than its better-known competitors.
20 Gambling Stocks: Stars Group (TSG)
Last month, Stars acquired Sky Betting & Gaming, creating the world’s largest publicly traded online gambling company. The move adds to Stars’ presence in Europe but, more importantly, adds a long-desired sportsbook to Stars’ offerings.
TSG spiked on the news and with good reason. But the stock still looks reasonably cheap. A 15x forward P/E multiple isn’t that aggressive, given growth potential.
Online poker isn’t quite the growth business casual observers might believe, but growth in casino offerings, the Sky acquisition, and potential U.S. growth all suggest a solid bull case for TSG going forward.
20 Gambling Stocks: International Game Technology (IGT)
Long known as the premier slot manufacturer worldwide, International Game Technology PLC (NYSE:IGT) seemed eclipsed over the past few years. Beyond its dominance in video poker and flagship franchises like Wheel of Fortune, IGT struggled to grow. An acquisition of social gaming company Double Down Interactive was widely panned.
Even a merger with Italy’s GTECH did little to help IGT stock, which languished for most of this decade. But of late, the stock has perked up … finally. Profits returned to growth in the fourth quarter, even with the loss of Double Down, which was sold at a tidy profit. 2018 guidance looked solid and implies that IGT is cheaper than rival SGMS.
IGT has pulled back of late, thanks to a post-earnings sell-off and a sale of stock by existing shareholders. But that pullback might be an opportunity — if IGT truly is back on track.
20 Gambling Stocks: PlayAGS (AGS)
PlayAGS Inc (NYSE:AGS) is a smaller player in the gaming equipment space and a relatively new option for investors. The company went public in January (after being owned by Apollo, the same company that bought Caesars).
It’s been so far, so good for AGS. The stock is up 43% from its IPO price. Earnings look solid, including raised guidance after Q1. And there’s a case for more upside.
For one, PlayAGS is expanding its reach (much like the strategy for Multimedia Games at EVRI). The company was approved in the Ohio market in March, creating a new base of potential customers. There’s room to undercut SciGames and IGT in US casinos, in particular, as some CEOs have expressed dissatisfaction with the power of those suppliers.
Meanwhile, PlayAGS is growing nicely — and looks reasonably valued. There is a fair amount of debt left from the P-E sponsors, but that’s not an outlier in this space. For investors looking for an undercovered stock in the industry, AGS just might fit.
20 Gambling Stocks: Monarch Casino & Resort (MCRI)
For investors betting that consolidation will continue, Monarch Casino & Resort, Inc. (NASDAQ:MCRI) might be the best play. There aren’t many small operators left to buy. Certainly, none have the attractive portfolio Monarch does.
The company owns and operates the Atlantis resort in Reno. That property has a long history – and high-end clientele. It’s also expanding its casino-resort in Black Hawk, Colorado, outside Denver. That project should be completed next year – and provide a huge boost to revenue and profits.
Like many other regional operators, MCRI does look expensive. Competition in both markets is intense. But both Reno and Denver are seeing population and income rise. And it’s likely that Eldorado, in particular, could take a long look at Monarch once the Black Hawk project is finished.
All told, Monarch looks like the likely next acquisition target. The only question is whether the market already has priced that in.
20 Gambling Stocks: Boyd Gaming (BYD)
Boyd Gaming Corporation (NYSE:BYD) hasn’t been left out of the M&A frenzy. The company doubled down on its Las Vegas locals business last year, buying two properties in the fast-growing North Las Vegas area. It picked up four regional casinos from Pinnacle, building out its Midwestern presence.
The key question is what Boyd will do next. A combination with Eldorado could create a real rival to Caesars and Penn. It could also return to paying down debt, boosting cash flow and potentially leading to dividend growth. (BYD yields 0.55% at the moment.)
Boyd does have options. The balance sheet isn’t pristine, but it’s better than it was earlier this decade. The Las Vegas market looks exceedingly attractive. Here, too, valuation is a bit of a concern. But investors need to remember that Boyd may have a few tricks up its sleeve.
20 Gambling Stocks: Empire Resorts (NYNY)
The long wait for Empire Resorts Inc (NASDAQ:NYNY) has ended. The company’s Resorts World Catskills opened in February in upstate New York.
What happens next will be interesting. The company is 88% owned by Genting Group (OTCMKTS:GEBHY), who operates resorts worldwide. More openings are following in the state, and MGM’s Springfield, Massachusetts property (just three hours away) comes online in August.
In the meantime, New York still is working on online gambling and sports betting — both of which could help Empire down the line. For now, NYNY looks like a shot in the dark, but if it works out big for Genting, minority shareholders could benefit as well.
20 Gambling Stocks: Golden Entertainment (GDEN)
I argued back in January that Golden Entertainment Inc (NASDAQ:GDEN) would hit an all-time high this year but that looks a bit optimistic. GDEN actually has fallen 7% so far this year, bucking the industry trend, even with a rebound of late.
Still, there’s reason for optimism. Like BYD, Golden has a solid and growing presence in the Las Vegas metro. The company manages distributed slot routes in Montana and Nevada and added the potentially lucrative Illinois market this year. Pennsylvania could be the next route market to target, and Golden could make more acquisitions going forward.
As one of the few gaming operators selling for less than it did at the beginning of the year, GDEN could be attractive to value-seekers. And given strong properties in Las Vegas and Maryland, it could be attractive to a larger rival as well.
As of this writing, Vince Martin has no positions in any securities mentioned.