The gaming sector has always been extremely cyclical, and with good reason. People don’t spend leisure money on casinos and gambling when economic conditions are lousy and every dollar counts. However, with the economy gaining some traction, and job growth solid, the top companies are doing well, and the prospects for the sector going forward look solid.
In a new research report from Patrick Sholes, the outstanding casino and gaming analyst at SunTrust Robinson Humphrey, he makes a key point in noting leisure spending and consumer confidence is strong, and new supply adds in key markets has been minimal. The industry often has tended to overexpand when times are good, only to fold up when things go south.
With bullish prospects for the crucial Las Vegas market, and positive outlooks on other markets around the country, the prospects for the gaming sector look good going forward. Here we focus on the four stocks rated Buy at SunTrust that are the most high-profile with investors.
This top company generated 55% of its EBITDA in the south and midwest parts of the United States. Boyd Gaming Corp. (NYSE: BYD) operates as a multi-jurisdictional gaming company. It operates through three segments: Las Vegas Locals, Downtown Las Vegas, and Midwest and South. The company owns and operates 24 gaming entertainment properties located in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.
The company also owns and operates a travel agency and a captive insurance company that underwrites travel-related insurance in Hawaii. As of December 31, 2016, Boyd operated 1,314,557 square feet of casino space, 31,006 slot machines, 656 table games and 9,513 hotel rooms.
The company remains a favorite for Las Vegas locals, and the analyst noted this in the report:
Boyd Gaming is substantially levered to the Las Vegas market (approximately 45% of segment EBITDA). The company generally targets largely locals in this market. However, Boyd’s Downtown properties also draw Hawaiian tourists. In general, Las Vegas locals performance is less impacted by weekends versus weekdays in a period than other gaming markets would be, as a substantial portion of the local economy works in hospitality.
Investors receive just a 0.73% dividend. The SunTrust price target for the stock is $32, and the Wall Street consensus target is $26.84. The shares closed Thursday at $27.31.
This well-known old-school gaming company offers solid upside. Caesars Entertainment Corp. (NASDAQ: CZR) provides casino-entertainment and hospitality services. Its segments include Caesars Entertainment Resort Properties, Caesars Growth Partners, and Other. The company’s resorts operate primarily under the Harrah’s, Caesars and Horseshoe brand names.
Caesars facilities include gaming offerings, food and beverage outlets, hotel and convention space, and non-gaming entertainment options. As of July 14, 2017, the company through its subsidiaries, operated 47 casinos in 13 states and five countries. The company recently completed a large reorganization and with solid exposure to Las Vegas strip trends, it looks to be a solid stock for aggressive accounts.
SunTrust has a $16 price target, and the consensus target is $15.20. The stock closed on Thursday at $12.30.
This gaming and hospitality company has a diverse property portfolio, with casinos and resorts across the country. Eldorado Resorts Inc. (NYSE: ERI) owns and operates gaming facilities located in Ohio, Louisiana, Nevada, Pennsylvania and West Virginia. Its segments are Nevada, Louisiana, Eastern and Corporate.
Eldorado Resorts owns and operates approximately 503,000 square feet of casino space with approximately 20,000 slot machines and video lottery terminals, over 550 table and poker games, 45 restaurants and 6,500 hotel rooms. As of December 31, 2016, it owned and operated various properties, including Eldorado Resort Casino Reno; Silver Legacy Resort Casino; Circus Circus Reno; Eldorado Resort Casino Shreveport; Mountaineer Casino, Racetrack & Resort; Presque Isle Downs & Casino; and Eldorado Gaming Scioto Downs.
The analyst noted in the report that the focus on the earnings call when the company reports in early November very likely will be on the recently completed Isle of Capri acquisition and the potential synergies. The firm also said it will be interested on the impact from the huge storms that hit the United States late in the summer.
The $30 SunTrust price objective compares with a consensus target price of $28 and Thursday’s close at $24.05.
MGM Growth Properties
This company is a triple net lease real estate investment trust (REIT) formed in April 2016 that was spun out of MGM Resorts. MGM Growth Properties LLC (NYSE: MGP) owns 10 integrated casino hotel resorts and one dining/entertainment complex, all managed by MGM. The company’s properties collectively hold 27,233 hotel rooms, over 2.6 million convention square footage, over 100 retail outlets, over 200 food and beverage outlets, and over 20 entertainment venues.
The company recently acquired the real estate of MGM’s National Harbor for $1.2 billion, or 12.5 times MGM’s initial rent payments of $95 million. The timing for the deal was ahead of Wall Street expectations, and rent captures a potential property ramp. MGM also announced a $1 billion share repurchase plan.
The analysts are expecting investor questions, especially in light of the recent tragedy that affected the company’s largest tenant. The company is expected to report November 8.
Investors receive a 5.42% distribution. SunTrust has set its price target at $35. The consensus target is $31.80, and shares closed on Thursday at $29.14.
With many growth ideas very expensive, it makes sense to look at the casino and gaming arena. With Americans feeling much better about loosening their purse strings, and Las Vegas remaining a hot destination, these top stocks to buy are solid growth ideas.