Casino and Hotel Stocks Rally Sharply From Midweek Lows

Friday 20th March 2020

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Battered sectors of the stock market like casinos and hotels have rallied sharply since panic lows Wednesday, with some stocks doubling since then.

For the gaming sector, investors are taking comfort that while U.S. casinos have been shut down, the operators have ample liquidity to last months and sometimes more than a year.

Penn National Gaming (ticker: PENN), a regional casino company, is up 28% in Friday trading to $7.80, more than double its Wednesday low of $3.75. Caesars Entertainment (CZR), which has agreed to be purchased by Eldorado Resorts (ERI), trades at $5.56, up 10% from its Wednesday low of $3.22.

Industry leader MGM Resorts International (MGM), the leading operator on the Las Vegas Strip, is up 21% to $9.33 from its Wednesday low of $5.90.

In a note Wednesday, Instinet analyst Harry Curtis wrote that the Macau-focused casino operators, Las Vegas Sands (LVS) and Wynn Resorts (WYNN), have the most liquidity, at more than 500 days.

"MGM appears also well positioned with over a year of liquidity by virtue of its asset sales, cash and revolver. While its Macau operations could return to cash positive within 2-3 months, operations in Las Vegas and the regional markets will consume cash for probably two(+) months. 3. CZR and PENN have the least cushion (2-3 quarters), although it is likely that VICI and GLPI will give their opcos temporary rent relief until the COVID crisis has passed," Curtis wrote Wednesday.

Caesars and Penn Gaming have so-called opco-propco structures in which they have sold casino properties to VICI Properties (VICI) and Gaming & Leisure Properties (GLPI) and leased them back from them.

Wynn is up 13% Friday to $52.68 and up almost 50% from its Wednesday low of $36. Las Vegas Sands, probably the strongest player in the industry due to its operations in Macau and Singapore, is up 7% Friday to $43.31 and is 30% above its Wednesday low of $33.

This was a popular form of financial engineering in the gaming industry based on the idea that a company's operations would get a higher market value within two structures by appealing to different investor bases.

Hotel stocks also have rallied, with Marriott International (MAR) up 8% Friday to $72.64 and more than 60% above its Wednesday low of $48. Hilton Worldwide Holdings (HLT) has risen 5% Friday to $61.18 and is up 40% from its Wednesday low of $44.

Cruise-line industry leader Carnival (CCL) is up 20% to $11.97 and 50% from its Wednesday low of $7.90. The company reported results for its December quarter late Thursday and analysts were encouraged by the amount of liquidity available to the company with its ships not sailing.

Write to Andrew Bary at andrew.bary@barrons.com

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