2 Buy-Rated Casino Stocks investors Should Consider Buying
The gambling industry has lagged the broader market this year. The closely-watched VanEck Gaming ETF (BJK) has jumped by just 9.2% this year. The performance has been mostly because of the rising regulations in Macau, the gambling capital of the world. Indeed, many casino stocks with exposure to Macau like Las Vegas Sands (LVS) and Wynn (WYNN), and Galaxy Entertainment have struggled.
However, the casino industry is expected to flourish as the global economy reopens and disposable income rebounds. The industry will also receive a significant boost from the growing trend of online gambling. According to GIA, the industry is expected to rise to more than $876 billion by 2026. In the United States, the industry will rise to more than $262 billion while in Asia, it is expected to rise to $322 billion.
Las Vegas Sands
Las Vegas Sands is one of the biggest casino stocks in the world with a market capitalization of more than $29 billion. Before the Covid-19 pandemic, the company had annual revenue of more than $13 billion and a net income of more than $3 billion. The pandemic caused its revenue drop to just $3 billion while its losses increased to about $1.6 billion.
The Las Vegas Sands stock price has lagged this year, falling by more than 30% this year and by about 40% from its highest level this year.
This performance is mostly because of the company’s geographical mix. Unlike most American casino companies, Las Vegas Sands has a major presence in Macau. Its Venetian casino is the biggest in the city. In addition to the Venetian, the company owns The Londoner Macau, Parisian Macau, Plaza and Four Seasons, and Sands. It also has operations in Singapore, where it owns the Marina Bay Sands.
This year, the Chinese government has moved to add more regulations on gambling, which has affected companies in the sector. The goal is to reduce corruption as Beijing continues to integrate Macau into its mainland.
Still, analysts are optimistic about Las Vegas Sands with the average price target by TipRanks estimates is that the stock will rise to almost $50. According to Yahoo Finance, most analysts have a buy and a strong buy rating.
Analysts are optimistic for several reasons, one or those being they expect that the firm’s revenue will make a comeback this year as restrictions are lifted. According to Seeking Alpha, the median estimate is that the company’s revenue will rise to $4.49 billion in 2021 and double to $8.13 billion in 2022.
Another, they believe that China will not do much to hurt Macau’s business. For one, the sector is pivotal to the region since it employs 1 to 5 people.
Also, as travel restrictions are lifted, analysts expect that the industry will see a strong comeback. This will be because many gamblers have had significant savings recently and that there is still strong demand for travelling. Most importantly, they see the company’s valuation being significantly positive for long term investors.
While many casino stocks have lagged, Caesars Entertainment has done relatively well, with its stock rising by 49% this year. This performance has been helped by the fact that Caesars does not have any significant casinos in Macau and mostly focuses on Las Vegas.
Analysts are mostly optimistic about Caesar’s stock price with the average stock target being $132, which is higher than the current $118. According to Yahoo Finance, the 8 analysts who have issued their ratings in October have had a hold, buy, and strong buy rating.
There are several reasons why analysts are optimistic about the stock. The company has invested substantial sums in online gaming, which is a fast-growing industry. The industry was valued at $53 billion in 2019 and is expected to grow by 11.5% in the next few years.
As part of its growth in online gaming, Caesars acquired William Hill for 2.9 billion pounds increasing its US online gambling business. Therefore, there is a likelihood that the company will see more growth as more states move to legalize online sports betting and gambling. The firm has already entered into several partnerships like with the NFL and ESPN to accelerate its growth.
The online division is so strong that it helps the company boost its revenue to more than $3.4 billion in 2020. Analysts expect that its revenue will rise to $9.7 billion this year and to $11.18 billion in 2022.
The Bottom Line
I believe that investors should “roll the dice” and buy the dip in Las Vegas Sands and Caesars Entertainment. Wall Street analysts are bullish on both stocks going forward and the general view is that these companies’ valuations are relatively cheap. For Las Vegas Sands, they believe that the situation in Macau will stabilize and push the company to do well. For Caesars, they expect that the company’s investment in online gaming will help accelerate its growth.