Casinos & Hotels

JPMorgan Says Right Now Is the Time to Buy Top Gaming Stocks

If there was ever a sporting event that gets people involved with their money, it’s the NCAA Basketball Tournament, which is right around the corner. March Madness draws millions of Americans into pools, and it also draws them from far and wide into America’s casinos to place their bets on who they think will be this year’s champion. The sheer size of the tournament, and the number of games played, make it a favorite at all the top sports books.

A new research report from Joseph Greff and the gaming and lodging team at JPMorgan makes the case that now is the time to buy the top gaming stocks as they typically outperform in the spring months. In fact, they note that March and April have the highest average historical gains for the sector.

The team is positive on four top companies, all of which are rated Buy at JPMorgan.

MGM Resorts

This old-school company combines a very strong presence in Las Vegas and growing clout in Macau. MGM Resorts International (NYSE: MGM) owns or operates casino resorts in the United States and China. Its casino resorts offer gaming, hotel, convention, dining, entertainment, retail and other resort amenities.

MGM’s casino operations include various slots, table games, and race and sports book wagering. The company operates 12 wholly owned resorts in the United States and MGM Macau resort and casino in China, as well as develops an integrated casino, hotel and entertainment resort on the Cotai Strip, Macau.

MGM posted solid fourth-quarter earnings and gave good 2018 guidance JPMorgan said this:

We like MGM for its exposure to Las Vegas, whose fundamentals are viewed skeptically by the buy side, which has resulted in undemanding valuation that doesn’t take into account incremental capital return.

Shareholders receive a 1.44% dividend. The JPMorgan price target for the shares is $44, and the consensus target is $40.38. The shares closed Thursday’s trading at $33.28 apiece.

Wynn Resorts

This top company saw the departure of its namesake founder earlier this year. Wynn Resorts Ltd. (NASDAQ: WYNN) operates Wynn Macau and Encore at Wynn Macau resort located in the People’s Republic of China.

The Macau resorts feature approximately 284,000 square feet of casino space, which offers 24-hour gaming and a range of games, with 458 table games and 708 slot machines, private gaming salons, sky casinos and a poker. Its two luxury hotel towers have a total of 1,008 guest rooms and suites, as well as casual and fine dining in eight restaurants, approximately 57,000 square feet of retail shopping in stores and boutiques, approximately 31,000 square feet of space for lounges and meeting facilities, and the Rotunda show. Recreation and leisure facilities include two health clubs, spas, a salon and a pool.

The company also owns and operates the Wynn Las Vegas and Encore at Wynn Las Vegas resorts, with a total of 4,748 hotel rooms, suites, and villas; 232 table games; 1,866 slot machines; a race and sportsbook and poker room in approximately 186,000 square feet of casino gaming space, including a sky casino and private gaming salons.

Wynn shareholders receive a 1.22% dividend. JPMorgan has a $196 price target, and the consensus target is $196.07. Shares closed Thursday at $163.42.

Eldorado Resorts

This company has a diverse property portfolio, with casinos and resort across the country. Eldorado Resorts Inc. (NYSE: ERI) is a gaming and hospitality company that owns and operates gaming facilities located in Ohio, Louisiana, Nevada, Pennsylvania and West Virginia.

The company 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, the company owned and operated various properties, including Eldorado Resort Casino Reno (Eldorado Reno), Silver Legacy Resort Casino (Silver Legacy), Circus Circus Reno (Circus Reno), Eldorado Resort Casino Shreveport (Eldorado Shreveport), Mountaineer Casino, Racetrack & Resort (Mountaineer), Presque Isle Downs & Casino (Presque Isle Downs) and Eldorado Gaming Scioto Downs.

The company also reported a strong quarter with earnings growth and cost savings being among the highlights for investors. JPMorgan cites the casinos’ proximity to the red-hot Reno and Blackhawk markets as a big positive.

The $38 JPMorgan price objective is in line with the consensus target of $38.71. The stock closed Thursday at $34.35.

Red Rock Resorts

This top company focuses on the lucrative Las Vegas market. Red Rock Resorts Inc. (NASDAQ: RRR) is a leading casino operator that primarily operates in the Las Vegas Locals market, while managing two Native American tribal facilities in northern California and western Michigan.

The company operates 19 casino and entertainment properties in the Las Vegas Locals market. In May 2016, Red Rock announced an agreement to acquire the Palms Hotel and Casino in Las Vegas for $312.5 million. The company’s solid presence in Las Vegas helped drive very solid overall results, despite a messy fourth quarter in which earnings came in below expectations.

The JPMorgan has set its price target at $37. The consensus target is $35.67, and shares closed Thursday at $32.09.

These are four outstanding stocks for investors looking to add to stocks that supply a gaming and lodging presence. It should be noted the sector is very cyclical, and downturns in the economy tend to hit the shares harder than most. With that in mind, they all look poised for a solid March and April, and that’s when investors generally see big gains from the gaming industry.

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