Things had been going pretty well for the casino and gaming stocks until last week, and then the hammer came down. Some so-so earnings combined with bad data and news from Macau sent many of the top stocks into a freefall. Despite the potential short-term negatives, there is at least one incredibly compelling reason why the shares should be bought aggressively now.
Recently the Supreme Court ruled in the favor of individual states on a case involving the constitutionality defined by a 1992 law, the Professional and Amateur Sports Protection Act, which prohibited states other than Nevada and Delaware from operating sports betting.
Several states already have passed legislation in advance and others are indicating high interest in pursuing the matter. Top Wall Street analysts feel that the addition of sports betting will indeed be a near near-term positive for some of the gaming stocks, and surely a long-term positive as sports books are fully integrated.
We screened the Merrill Lynch casino and lodging universe and found four top companies rated Buy that could be an excellent bet for aggressive accounts looking to add some of the battered sector leaders to their portfolios.
This top company remains a Wall Street favorite. Boyd Gaming Corp. (NYSE: BYD) operates as a multi-jurisdictional gaming company through three segments: Las Vegas Locals, Downtown Las Vegas and Midwest and South. The company owns and operates 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.
Boyd 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 affected 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 Merrill Lynch price target for the shares is $45, and the Wall Street consensus target is $41.67. The shares closed Wednesday at $35.87.
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. Caesars Entertainment is one of the largest gaming companies in the world and currently owns or operates 49 casino properties in 13 U.S. states and in four other countries.
Merrill Lynch has a $13 price target, and the consensus target is $14.49. The stock closed Wednesday trading at $9.80.
MGM Resorts International
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.
The company reported second-quarter earnings slightly below the Wall Street forecasts, but Merrill Lynch has data that supports trends improving by the fourth quarter, which makes current buying of shares timely.
Shareholders receive a 1.64% dividend. The $35 Merrill Lynch price target is in line with the $35.56 consensus target. Shares closed on Wednesday at $28.95.
Red Rock Resorts
This is another company that focuses on the lucrative Las Vegas locals market. While Red Rock Resorts Inc. (NASDAQ: RRR) is a leading casino operator that primarily operates in the Las Vegas, it also manages two Native American tribal facilities, in northern California and western Michigan. The company operates 19 casino and entertainment properties in the Las Vegas. 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 for the second quarter, and the analysts feel that with renovations at the Palms and Palace now past peak disruption, they expect earnings growth to accelerate in coming quarters.
Investors receive a 1.24% dividend. Merrill Lynch has a price target of $38. The consensus target is $37.70, and shares closed Wednesday at $32.21.
Four top stocks rated Buy, and some with absolutely no exposure to Macau and the trends there. All are probably solid value buys, and with the football season right around the corner, you can bet that gamblers will flood the new sports books around the country.