If there is anything that brings out the gambler in all of us, it’s the annual March Madness NCAA Basketball tournament. In fact, it’s estimated that a stunning $10 billion will be bet on the tournament, and a large part of that will be illegal. However, many of the top casinos will get their fair share of the take, and it could help spike numbers for the quarter.
A new Deutsche Bank research report notes that while most of the top regional casinos and hotels are tracking behind first-quarter estimates, in many cases due to the severe weather in the Midwest and Northeast, they do expect March to improve things and the tournament may be a factor.
The analysts are positive on four top companies, and all are rated Buy at Deutsche Bank.
This top company remains a Wall Street favorite. Boyd Gaming Corp. (NYSE: BYD) operates as a multi-jurisdictional gaming company. It 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, 2017, the company owned and operated 24 gaming entertainment properties offering a total of 1,358,856 square feet of casino space, 30,267 slot machines, 632 table games, and 9,372 hotel rooms.
The company remains a favorite for Las Vegas locals and is substantially levered to the Las Vegas market. The company generally targets largely locals in this market. The company’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.
The Deutsche Bank price target for the shares is $44, and the Wall Street consensus target is$36.06. The shares traded early Monday at $33.40.
This gaming and hospitality company has a diverse property portfolio, with casinos and resorts stretched across the country. Eldorado Resorts Inc. (NYSE: ERI) owns and operates gaming facilities in Ohio, Louisiana, Nevada, Pennsylvania and West Virginia.
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, the company 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 company also reported a strong quarter with EBITDA growth and cost savings being among the highlights for investors. Many analysts cite the casinos’ proximity to the red-hot Reno and Blackhawk markets as a big positive.
Deutsche Bank has a $37 price objective, and the consensus target is $39.50. The stock traded at $35.75 Monday morning.
Penn National Gaming
This company made a huge Las Vegas purchase in 2016 to bolster its gaming portfolio. Penn National Gaming Inc. (NASDAQ: PENN) owns, operates or has ownership interests in gaming and racing facilities and video gaming terminal operations, with a focus on slot machine entertainment.
As of December 31, 2017, the company operated 29 facilities in 17 jurisdictions, including California, Florida, Illinois, Indiana, Kansas, Maine, Massachusetts, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Pennsylvania, Texas, West Virginia, and Ontario, Canada. As of December 31, 2017, in aggregate, Penn National Gaming operated approximately 36,700 gaming machines, 820 table games and 4,800 hotel rooms.
The $36 Deutsche Bank price target compares with the $34.00 consensus target. Shares were last seen trading at $26.55.
Red Rock Resorts
This is another company that focuses on the lucrative Las Vegas market. Red Rock Resorts Inc. (NASDAQ: RRR) is a leading casino operator, which 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 when EBITDA came in below expectations.
Deutsche Bank has set its price target at $38. The consensus target is $35.60, and shares traded at $31.30 apiece.
Four outstanding stocks for investors to add to portfolios for 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.