Stifel Out With Top Gaming and Leisure Picks for 2019

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There is one good thing about an aging U.S. population for many top companies. While some are indeed working longer, tens of thousands of baby boomers hang it up for good every week, and they are ready for some fun after 40 to 50 years of professional or blue-collar careers. One common thread with many of those retiring is they are ready to travel and to spend some of their hard-earned retirement, pension or savings to do so.

In a new report, the gaming and leisure team at Stifel looks across the board for companies that may not only benefit from this trend but fit into the firm’s narrative for how 2019 may play out for investors.

The Stifel report noted this:

Given the elevated volatility in global financial markets and an increasingly unsettled global geopolitical picture, we believe we should expect the unexpected in 2019 across the gaming and leisure sector. With that as a backdrop, we favor three types of businesses in 2019: (1.) Those with no or limited exposure to consumers residing outside of North America; (2.) Those boasting the unique combination of blue chip assets, superior balance sheet flexibility and a favorable long-term growth outlook; and (3.) Those positioned to derive an outsized benefit from company-specific strategic growth initiatives.

While the firm doesn’t specifically address the population demographics per se, it’s a good bet that in addition to the people who would flock to some of their top picks, the seniors will play a big part. Here are four of the top five Stifel picks for 2019. We skipped the gaming equipment selection.

Boyd Gaming

This top company remains a Wall Street favorite, and Stifel just upgraded the shares to Buy from Hold. 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 stock was hammered near the end of 2018, and the analysts said:

Broadly speaking, we believe the sharp selloff across the regional operator group over the final weeks of 2018 on seemingly no change in underlying operating fundamentals has created a unique opportunity for investors to put new money to work in the names.

Stifel has a $33 price target, and the consensus target is $37.91. The shares closed at $26.24 on Friday.

Las Vegas Sands

While the gaming industry has had a somewhat tough year due to earlier issues in Macau, this stock has hung in reasonably well and is the top large-cap pick at Stifel. Las Vegas Sands Corp. (NYSE: LVS) is a leading hotel, gaming and resort development company that owns the Venetian Resort, the Palazzo and the Sands Expo Convention Center in Las Vegas, and Sands Bethlehem in Pennsylvania. The company also owns the Sands Macao, Venetian Macao, Four Seasons Macao, Parisian and Sands Cotai Central in Macau, as well as Marina Bay Sands in Singapore.

The company, founded 31 years ago, receives 90% of its earnings from Asia and generates 30% of revenue from its casino operations. And while the Macau revenue jumped for 2018, worries about a slower Chinese economy kept pressure on the shares. The Stifel report said this:

Although ongoing US/China trade negotiations and an unsettled global geopolitical picture could work against the shares in the near term, we see nothing out there at this point capable of tempering our long term enthusiasm on the name. We believe Las Vegas Sands unrivaled scale and investments for the future position its Macau business to remain a leader in the world’s premiere gaming market for the foreseeable future.

Las Vegas Sands investors receive a 5.27% dividend. The $72 Stifel price target compares with a $66.14 consensus. The stock closed most recently at $56.96.