Casino Stocks Among Q3 Consumer Discretionary Leaders

Posted on: August 30, 2022, 05:00h. 

Last updated on: August 30, 2022, 07:18h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The S&P 500 Consumer Discretionary Index is up 13.4% in the third quarter, outpacing the broader S&P 500 by nearly 800 basis points. Casino stocks are a big reason why.

casino stocks
The Las Vegas Strip. Some experts see casino stocks rallying into the end of 2022. (Image: CNBC)

With many gaming equities deep in the red on a year-to-date basis and well off their 52-week highs, some market observers believe there’s more upside in store for shares of casino operators. They also think that the group could be a catalyst for broader consumer cyclical gains.

The S&P 500 consumer discretionary sector is up 16% in the third quarter, beating the S&P 500 in that time and only lagging the energy sector. That gain puts it on track for its biggest quarterly gain since the second quarter of 2020, when it surged 32.6%,” reports CNBC.

Count Caesars Entertainment (NASDAQ: CZR), MGM Resorts International (NYSE: MGM), and Penn Entertainment (NASDAQ: PENN) among the casino stocks that are showing signs of life and that could offer significant upside ahead as well.

Screen Bodes Well for Casino Stocks

Using FactSet data, CNBC screened for consumer cyclical stocks that are up at least 1% in the current quarter, with at least 50% of analysts covering those names rating them “buy” or better. That’s while offering at least a 15% upside to current price targets.

Caesars Entertainment, MGM Resorts, and Penn Entertainment are three of the 19 names on that list and the only gaming equities in the group. All three are up noticeably in the third quarter, with MGM and Caesars — the two largest operators on the Las Vegas Strip — flirting with gains of 16% since July 1.

Alone, that’s impressive. But the trio of aforementioned casino stocks also offer substantial upside potential relative to analysts’ current price forecasts. Caesars’ labors are around 66% below the average sell-side price outlook, while MGM trades 57.3% below Wall Street’s consensus price target. Penn Entertainment needs to gain almost 57% to reach analysts’ price outlook.

Of the 19 consumer discretionary equities on the list, those are, by far, the largest percentages to run to consensus price targets. The next closest stock is Bath & Body Works (NASDAQ: BBWI) at 35.6%. Booking Holdings (NASDAQ: BKNG) is the other travel and leisure equity in the group.

Each Casino Stock Has Advantages

Each of the three gaming stocks offers some credibility as potential generators of upside. In the case of Penn, the company has no international footprint and limited exposure to the volatility of the Las Vegas Strip.

Like Penn, Caesars has an extensive regional portfolio. But it’s also synonymous with the Strip, putting it in a position to capitalize as Sin City visitation trends remain strong. Analysts also view the Horseshoe operator as a debt-reduction/free cash flow story.

Regarding MGM, investors get a call option on a possible Macau rebound while accessing exposure to some of the Strip’s prime integrated resorts. All three companies are nearing profitability with their iGaming/sports betting units, which will likely draw applause among analysts and investors.