Gaming Industry Displaying Fortitude Amid Headwinds, Says Analyst

Posted on: December 11, 2022, 02:22h. 

Last updated on: January 3, 2023, 05:34h.

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

Broadly speaking, share price performances across the gaming industry this year are unimpressive.

Gaming Industry
Caesars Palace on the Las Vegas Strip. It’s one of the gaming industry stocks an analyst is bullish on. (Image: Bloomberg)

That’s the result of macroeconomic headwinds, including persistent inflation and rising interest rates, as well as ongoing concerns regarding when sportsbook operators will finally reach profitability. Still, gross gaming revenue (GGR) and visits data, including Las Vegas and regional market, belie weak equity market action and the aforementioned economic issues.

In a recent note to clients, Macquarie analyst Chad Beynon says various gaming industry data point to potential firmness in fourth-quarter earnings. That’s in addition to the possibility of strength through the first half of 2022.

Since G2E (Oct ‘22) and 3Q earnings (Oct-Nov ‘22), we have digested several industry and macro datapoints as well as updated management commentary. At this point, we feel slightly more comfortable with 4Q22 as well as 1H23 estimates given consumer resiliency, low unemployment and publicly reported data,” wrote Beynon.

In alphabetical order, Macquarie’s preferred gaming industry equity ideas are Caesars Entertainment (NASDAQ:CZR), DraftKings (NASDAQ:DKNG), Everi (NYSE:EVRI), International Game Technology (NYSE:IGT), MGM Resorts International (NYSE:MGM), and Penn Entertainment (NASDAQ:PENN).

Strong Q4 Clues from Gaming Industry

October was the 20th consecutive month in which Nevada casinos notched GGR of at least $1 billion. As Beynon points out, there are signs Las Vegas and regional operators could finish 2022 in strong form.

“4Q has started off well with Oct Regional GGR of $3.4bn (+2% YoY; +14% vs ’19), Vegas (+1% YoY; +31% vs ’19), US Online (+65% YoY), despite one less weekend day in the month,” added the analyst. “We estimate that slot revenue slightly underperformed table revenues, given the strength from last year’s results. That said, it was encouraging to see NV Slot revenue set an all-time record.”

Outside of the US, there are finally signs of life among Macau stocks,despite China’s still deployed zero-COVID policy and related travel restrictions. In fact, Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), which control a combined seven Macau integrated resorts, are among this year’s best-performing gaming equities.

“Regarding Macau, we expect demand to significantly improve ahead of CNY (Jan 22nd), which could be a catalyst for Macau estimates,” said Beynon.

Gaming Industry Small-Cap Ideas

With the exception of Everi, the gaming industry stocks on Macquarie’s preferred list are mid- and large-cap names. However, the research firm has some ideas among small-caps – a market capitalization segment that’s outperforming its larger rivals this year.

In addition to Everi, Macquarie is constructive on internet lottery provider NeoGames (NASDAQ:NGMS) and sportsbook operator Rush Street Interactive (NYSE:RSI), among small-cap gaming equities.

RSI, which is nearing profitability, operates under the BetRivers and PlaySugarHouse brands, and is currently available with mobile or retail businesses in Colorado, Illinois, Indiana, Iowa, Michigan, New Jersey, New York, Pennsylvania, Virginia, and West Virginia.