The casino and gaming sector has outperformed the broad market over the last 52 weeks, despite anxiety that ramped up early in 2023 over the impact on consumer discretionary spending of the high interest rate environment and volatile macroeconomic backdrop. Without any help from Apple (AAPL), Microsoft (MSFT), or Nvidia (NVDA) – the VanEck Gaming ETF (BJK) and Roundhill Sports Betting & iGaming ETF (BETZ) funds have both outperformed the S&P 500 Index and even widened the gap over the last month. In general, post-pandemic recoveries in Las Vegas and Macau are playing out as planned, while profitability is entering the picture in the sports betting sector.
Las Vegas: The strong trends in Las Vegas Strip continued in June. Despite a 1.1% decline in the headline gaming win tally of $727M due primarily to an unfavorable comparison for baccarat, the underlying slots and table game trends looked solid. For the full fiscal year that ended on June 30, the Las Vegas Strip saw gaming win rise 4.8% to $8.53B. Overall visitation to Las Vegas was up 3.1% year-over-year during June and was 95% of the pre-pandemic level seen in June of 2019. Of note, Las Vegas and Nevada casinos may be feeling the impact from the record heat this summer, warned CBRE Equity Research analyst John DeCree. He said the traffic headwind could persist July and August.
Macau: The Macau Gaming Inspection and Coordination Bureau reported gross gaming revenue in the gambling region rose 514% year-over-year in June to $15.21B patacas ($307M). While the return of live performances in Macau and the four-day Dragon Boat Festival holiday were cited as traffic drivers during the month, the GGR mark missed the consensus estimate of analysts for a 530% year-over-year increase and was 2.3% lower than the GGR generated in May. For the first six months of 2023, Macau gross gaming revenue was up 205% year-over-year to $80.14B patacas ($9.93B). A tally that is still far short of the pre-pandemic $149B patacas generated in 2019 for the same time period. The Macau numbers for July are due to be reported on August 1. There is still some caution on Macau names due to the Beijing wildcard. “While we believe Macau is the most dynamic global gaming market, we note changes to concession agreements (renewal timelines and capital requirements), VIP controls, and ongoing U.S.-China decoupling chatter should factor into a balance of pre-COVID segment valuations,” warned B. Riley Securities analyst David Bain.
Sports betting: DraftKings (DKNG) continues to be viewed favorably by analysts ahead of its earnings report on August 3, with the last 17 EPS revisions on the stock being to the upward side. Jefferies hiked its price target on DraftKings (DKNG) to a Street-high $38 on its view the Boston-based company continues to solidify its leadership role in the U.S. The positive momentum could continue for DKNG if the earnings call update on the profitability track is encouraging. In regard to profitability, a big development occurred when Entain (OTCPK:GMVHF) and MGM Resorts (NYSE:MGM) released the first half trading update on their BetMGM joint venture. Overall, net gaming revenues grew 55% during the first half, including +25% same-state growth. Reading through the numbers, Macquarie tipped off that the sports betting company reported its first EBITDA positive quarter during Q2. The sports betting playing field will get a little narrower based on a Bloomberg report indicating that Fox Corp. (FOX) and Flutter Entertainment (OTCPK:PDYPY) plan to wind down the Fox Bet business on August 1. Fox will retain rights to the Fox Bet brand and the related Super 6 promotion, as well as its option to acquire an 18.6% stake in FanDuel (DUEL). On the flip side, Fanatics (FANA) Betting & Gaming launched its first retail Sportsbook in Maryland in January of this year, and in May launched the beta version of its mobile Sportsbook in both Tennessee and Ohio. Fanatics (FANA) intends to launch and operate its Sportsbook and iGaming platform in additional states. Fanatics (FANA) could announce that it is going public through an IPO in the back half of the year.
Earnings check: Churchill Downs (CHDN) fell sharply after missing estimates with its Q2 earnings report. The downside in the quarter was primarily driven by the Gaming segment and softer-than-anticipated results for the TwinSpires business. Boyd Gaming (BYD) also was down after a mixed earnings report that included some deceleration in certain Southern gaming markets and pressure on the EPS line. Early in the earnings season, Las Vegas Sands (LVS) reported Macau revenue and EBITDA above the consensus expectations, although the ramp of the Londoner impacted margins. Still, consolidated adjusted property EBITDA hit a post-pandemic high during the quarter. LVS also reinstated its quarterly dividend at $0.20 per share and signaled that it would take a more balanced approach with buybacks. The resumption of the capital return program is being seen as a sign of management’s confidence in the underlying fundamental strength of the Macau and Singapore businesses. Looking ahead, Caesars Entertainment (CZR) will report earnings on August 1, and MGM Resorts (MGM) is lined up to spill numbers on August 2. Wynn Resorts (WYNN) is expected to step into the earnings confessional the following week.
Tale of the tape: The biggest year-to-date share price gainers from the broad casino and gaming sector are DraftKings (DKNG) +184%, (NGMS) +124%, MGM Resorts (MGM) +52%, (IGT) +48%, (ACEL) +46%, Caesars Entertainment (CZR) +39%, and Codere Online (CDRO) +31%. The stocks trading with the lowest forward price-to-earnings ratios are Inspired Entertainment (INSE), Everi Holdings (EVRI), Full House Resorts (FLL), Century Casinos (CNTY), Accel Entertainment (ACEL), Churchill Downs (CHDN), and Super Group Limited (SGHC). Meanwhile, only DraftKings (DKNG) and Penn Gaming (PENN) have a short interest percentage of over 6% of total float The top dividend yields to be found in the sector are from International Game Technology (IGT) at 2.39% and Red Rock Resorts (RRR) at 2.07%.
What the quants say: The five stock with the highest overall Seeking Alpha Quant Ratings are Genius Sports Limited (GENI), Studio City (MSC), Flutter Entertainment (OTCPK:PDYPY), Accel Entertainment (ACEL), and Evolution AB (OTCPK:EVVTY). Sportradar Group (SRAD) and Genius Sports (GENI) topped the growth grade chart, while Elys Technology (ELYS), Century Casinos (CNTY), GAN Limited (GAN), and Esports Entertainment (GMBL) all scored very high on valuation. In terms of profitability, Churchill Downs (CHDN) and Light & Wonder (LNW) received A+ quant grades. Strictly looking at momentum, pushed NeoGames (NGMS) and Melco Resorts (MLCO) to the top of the list.
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