Casino Stocks Could Make a Comeback

Wednesday 30th December 2020

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With winter setting in, more coronavirus-related restrictions, and the holidays, Las Vegas has been quiet lately. Yet it may not stay that way in 2021, a year that could be better for gambling overall.

Macquarie analyst Chad Beynon took a look at recent performance metrics for the industry. He found that trends at most casinos are worsening, although drive-in traffic was a bright spot.

"Given the colder months and normal seasonal weakness we expect the fourth quarter and first quarter of 2021 to remain as bad or worse than the third quarter for the exposed companies," including MGM Resorts (ticker: MGM), Caesars Entertainment (CZR), Las Vegas Sands, (LVS) and Wynn Resorts (WYNN), he wrote in a research note.

Despite his caution about the near term, Beynon said signs of a pickup in the number of visitors in the next 60 to 90 days could bode well for the second half of the year, especially as the economy reopens. Gambling companies with an online presence will likely continue to see more revenue from digital bets, he predicted.

He has Buy ratings on Caesars, Las Vegas Sands, and MGM, with price targets of $85, $60 and $36. He has a Neutral rating on Wynn.

Of course, plenty of investors expect 2021 to be an improvement, given that widespread vaccination should eventually help Las Vegas and other gambling centers move closer to normalcy. Yet skeptics might point to the growing focus on environmental, social, and governance investing as a hindrance to the casino companies' efforts to attract new investors.

Jefferies analyst David Katz believes the tide is shifting in gambling companies' favor. While casinos may have been traditionally lumped in with the "sin" stocks, he noted that as gambling has spread to 42 states in the past 25 years, opinions have changed.

A percentage of revenues -- variable by state -- is earmarked for social projects, he said, while gambling often improves the overall economic outlook for a region, a trend that is especially true for tribal gaming. Problem gambling would be less of an issue if funds were directed more toward research and prevention, rather than treatment after trouble emerges, he said.

Ultimately, Katz wrote, gambling can work in favor of programs ethical investors are likely to care about, such as education. ESG concerns are no reason to dismiss the stocks, and could even eventually benefit them.

Write to Teresa Rivas at teresa.rivas@barrons.com

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