Casino stocks faced significant headwinds in fiscal year 2020 with the pandemic impacting land-based casino operations. However, the worst seems to be over.
Last month, the Centers for Disease Control and Prevention (CDC) issued guidance to relax travel for individuals who have been fully vaccinated.
A recent report suggests that the United States is averaging 2.7 million vaccine shots per day. In majority of the states, half of the adults have been jabbed. It’s very likely that a vast majority of the adults will be vaccinated in the next six months.
Considering the vaccine efficacy, U.S. is likely to witnessed accelerated GDP growth with complete re-opening of the economy. A John Hopkins (Bloomberg School of Public Health) report suggests that “people are tired of making drastic changes to their everyday lives and forgoing things that are important to them… .”
It goes without saying that travel and leisure are big stress busters. Thus, the pent-up demand for these activities is good news for casinos and casino stocks. In the coming quarters, it’s very likely that casinos will start operating at full capacity. This will translate into top-line and cash flow growth.
Overall, casino stocks have already been in an uptrend with most companies pursuing omni-channel growth strategy. And with casinos and resort openings, I believe that the positive momentum will sustain.
With all of that in mind, these three casino stocks are worth considering.
Now, let’s dive in and take a closer look at each one.
Casino Stocks To Buy: Penn National Gaming (PENN)
PENN stock has surged by 484% over the past year. However, year-to-date, the stock has remained largely sideways — up just 5%. That said, this seems like a good opportunity to buy.
Needham recently started coverage on the stock with a price target of $151. This would imply an upside of 67% from current levels of $90.40.
One reason for being bullish on Penn National is the company’s omni-channel capabilities. In fiscal year 2020, the company acquired 36% stake in Barstool Sports. With online sports betting and iGaming market gaining traction, the company is well-positioned to benefit.
However, the company’s 41 properties across 19 states remain the key revenue and cash flow driver. It’s worth noting that for FY2020, the company reported operating cash flow (OCF) of $338.8 million. OCF remained positive even with closure of properties due to the pandemic. Cash flows are likely to accelerate in the coming year and in FY2022 as business operations return to normal.
Penn is scheduled to report Q1 results for FY2021 on May 6. This is a potential trigger for renewed upside in the stock. And with strong fundamentals and growing omni-channel capabilities, PENN stock is among the top casino stocks to consider.
Bally’s Corporation (BALY)
With Bally Casinos and Bally Interactive, the company has also been moving towards creating omni-channel revenue capabilities. Given the big potential in the online sports betting and iGaming segment, it’s not surprising that BALY stock has surged.
However, at a forward price-earnings ratio (P/E) of 40.3, there seems to be potential for further upside. In particular, at a time when land-based casinos are likely to deliver better numbers in the coming quarters.
Bally has pursued an acquisition strategy to expand its casino network. In the last two years, the company has acquired seven properties. Furthermore, the company has three pending acquisitions that are expected to close in mid-2021. Acquisitions will add to the company’s growth momentum once casinos are full operational (100% capacity allowed).
It’s also worth noting that the company is planning a $650 million world class casino and resort in Richmond, Virginia. The resort is likely to span 1.6 million total square feet and will include casino, hotel, sportsbook, pool, dining and retail outlet.
Therefore, with ambitious casino growth plans coupled with growth in the iGaming market, BALY stock looks attractive. The company believes that the U.S. sports betting and iGaming market is likely to be worth $50 billion art maturity. Therefore, there is ample headroom for growth in the coming years.
Casino Stocks To Buy: Boyd Gaming (BYD)
BYD stock is another name among casino stocks to consider. The stock has already delivered healthy returns of 317% in the past year. However, at a forward P/E of 24.2, the stock continues to look attractive.
Recently, the company reported Q1 2021 results. With improved economic conditions coupled with vaccinations against Covid-19, the company witnessed higher “visitation and growing spend-per-visit across every customer segment.” The company achieved an all-time record for adjusted EBITDA and operating margin.
As vaccinations continue and the economic outlook improves further, the company is well positioned for growth. Besides gaming, the company has also witnessed growth in demand for “non-gaming amenities and growing demand for hotel capacity from both rated and unrated customers.” This is likely to ensure that coming quarter numbers are strong in terms of top-line and key margins.
Currently, the company is operating 28 gaming properties in 10 states. In addition, the company has also commenced construction of Wilton Rancheria Tribe’s resort near Sacramento, California. The casino will have 2,000 slot machines and 80 table games and operations will commence in the second half of FY2022.
In the online segment, Boyd launched the first Stardust-branded online casinos in New Jersey and Pennsylvania. Furthermore, FanDuel Sportsbook and Casino App are already available in in New Jersey, Pennsylvania and Michigan. Therefore, growth in land properties coupled with iGaming is likely to ensure healthy growth.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.