Biggest Gambling Companies Stocks
Savvy investments in e-commerce businesses have helped turn Walmart into the second biggest e-commerce company by share. And it's still growing at a rapid clip, boasting 37% online sales growth. Gambling Stock to Own, No. 1: Monarch Casino & Resort. Monarch Casino & Resort Inc. (NASDAQ: MCRI) is the first gambling stock on our list, with a VQScore of 4.15. This is not a company that many.
Published on April 20th, 2020 by Harvi Sadhra
This is a guest contribution by Harvi Sadhra of Hashtag Investing. Hashtag investing is an exclusive community for active investors to get real-time feedback and discover compelling stocks and strategies any time.
At the height of COVID-19, gaming stocks are making new highs. As the world is locked indoors due to the pandemic, more people are joining the gaming world.
While gaming stocks are typically not the type of high quality dividend growth stocks we cover on Sure Dividend, they have performed especially well as of late.
Gaming stocks like Zynga (ZNGA) and Activision Blizzard (ATVI) recovered from the March sell-off and rose more than 20% and 12% YTD (year-to-date), outperforming the S&P 500 Index, which fell 14%.
Biggest Gambling Companies Stocks Today
Welcome To The Lucrative World Of Gaming
Even before the pandemic, the video game industry was lucrative, growing 7.2% YoY (year-over-year) in 2019. Video games are gradually becoming the preferred form of entertainment. Data from Newzoo and Comscore shows that global video game revenue of $148.8 billion surpassed worldwide movie box office collection of $42.5 billion in 2019.
The significant change in the technology and business models of the gaming industry is driving growth. Video games have expanded beyond consoles to PCs and mobile. Thanks to high-speed internet, game developers have gone digital. Instead of buying video game packages, gamers can download games, subscribe to cloud gaming services, and make in-gaming purchases like new missions and player skins to enhance their gaming experience.
Similar to other physical sports, video games have sporting events called esports, where professional gamers compete in front of millions of viewers. According to Newzoo, 443 million people watched esports in 2019, and this number is expected to reach 495 million in 2020. The secret to succeeding in gaming is developing games that generate a loyal fan base for sequels, prequels, and merchandise goods.
2020 – A Good Year For Gaming
2020 is a good year for gaming stocks. We bring to you the top five NASDAQ gaming stocks which you should have in your portfolio. The stocks were selected based on their liquidity, growth, and fundamental strength.
Biggest Gambling Companies Stocks Today
Top Gaming Stock #1 – Activision Blizzard
Activision Blizzard is the world’s largest pure-play video game company with $6.5 billion in annual revenue and $51.8 billion market capitalization. It earns revenue by selling video games and services for game consoles (30%), PCs (26%), mobile devices (34%), and others (10%). Game services include in-game purchases and merchandise while the others segment includes proceeds from esports events.
Activision Blizzard has one of the most robust franchisee catalogs including World of Warcraft, Call of Duty, StarCraft and Bubble Witch, Diablo, and Overwatch. It earns 76% of its revenue from digital channels and 24% from retail and other sources. Activision Blizzard also broadcasts professional Overwatch matches on Disney’s (DIS)ABC networks, the Disney Channel, and ESPN.
In 2019, Activision Blizzard’s revenue fell 13.5% YoY, while its free cash flow rose 3.4% YoY to $1.7 billion. With a net cash position of ~$3.2 billion, it is well-placed to withstand the crisis and pay a dividend. The stock is making a new 52-week high of $67 amidst the pandemic.
Top Gaming Stock #2 – Electronic Arts
Electronic Arts (EA) is another video game giant with annual revenue of $5.5 billion and a market cap of $32.8 billion They offer games and services for consoles, mobile, and PC, and earn ~75% of revenue from digital channels. However, EA is more dominant in game console sales, earning 70% of its revenue from here. It earns 15% revenue each from PC and mobile games, and is witnessing increasing growth in mobile games.
EA has some of the best sports game franchises like Madden NFL, NCAA Football, NBA Live, and FIFA, and it is monetizing these games on esports. It also has an exclusive agreement with Disney for the rights of the Star Wars franchise. The franchisee licenses limit EA’s scope for merchandise sales. Its largest source of revenue is live services like in-game purchases, extra content, subscriptions, and esports. EA plans to monetize its games like Apex Legends and Battlefield through esports.
EA has a stronger cash position than Activision Blizzard. EA generates a higher free cash flow of $1.76 billion and has a more substantial net cash position of $4.6 billion. Its stock rose 5.7% YTD to its 52-week high of $114.47.
Top Gaming Stock #3 – Take-Two Interactive
Unlike EA and ATVI, Take-Two Interactive (TTWO) is a smaller player with estimated annual revenue of $3 billion and a market cap of $14 billion. However, similar to EA, Take-Two has a larger exposure to game consoles, which contribute to 85% of its revenue. It earns the remaining 15% revenue from PC and other platforms. It has less exposure to esports but has the potential to expand.
Take-Two’s biggest franchise Grand Theft Auto has the potential to become an esports game. Its other popular franchises include Red Dead Redemption, NBA 2K, and WWE 2K. Unlike EA that earns more than half its revenue from live services, Take-Two earns only 37% of its revenue from live services. Its major source of income is full game spending.
Take-Two Interactive is estimated to have a free cash flow of over $500 million and a net cash position of over $2 billion in fiscal 2020.
Top Gaming Stock #4 – Zynga
Another smaller player in the video game space is Zynga (ZNGA), which widely caters to the mobile platform. All its mobile games are free and it earns most of its revenue from in-game purchases and other live services. Some of its biggest franchisees are Mege Dragons, Empire & Puzzles, and Slots. It draws 90% of its revenue from mobile and 10% from advertising.
In 2019, Zynga’s revenue rose 46% YoY to $1.32 billion, and free cash flow rose 52.5% to $239 million. It has a net cash position of $790 million. Zynga is a high-growth stock increasing 21% YTD and has a market cap of $7.12 billion.
Top Gaming Stock #5 – NetEase
Adding to the above four American companies is Beijing-based NetEase (NTES), which develops PC and mobile games and also distributes games of Activision and Microsoft’s Mojang in China. NetEase largely caters to China, Japan, and other Southeast Asian markets. It has franchises like Westward Journey, Knives Out, and Identity V. Apart from gaming, it offers other online services like advertising, email, e-commerce, and music streaming.
NetEase revenue rose 15% YoY to $8.4 billion and generated free cash flow of $1.95 billion in 2019. NTES stock rose 6.1% YTD and has a market cap of $46.2 billion.
Good Gaming Mix
The above list is a mix of large players such as ATVI, EA, and NTES, high growth stock ZNGA, and a mid-cap stock TTWO. ATVI, EA, and TTWO peaked in Q3 2018 and then came crashing down as China froze gaming license approvals. These three stocks performed in line with the S&P 500 Index in 2019. Now, they are on a growth spree and have the potential to reach their 2018 levels as the covid situation, and regulatory environment works in their favor.
On the other hand, ZNGA and NTES outperformed the market in 2019 and see strong growth momentum in 2020 as well.
Updated on September 14th, 2020 by Bob Ciura
As the saying goes, the house always wins. Casinos operate strong business models, as casinos earn a virtually guaranteed profit from the sum of the bets they receive. The relatively attractive economics of casinos make the industry worthy of a closer look.
Investors may be particularly intrigued by the earnings growth and dividends of the major casino stocks. The 4 major publicly-traded casino stocks all pay dividends to shareholders, but they are far from the safest dividend stocks around.
If you are looking for a safer basket of dividend growth stocks, consider the Dividend Aristocrats. They are an elite group of 65 stocks in the S&P 500 Index with 25+ years of rising dividends.
You can download an Excel spreadsheet of all 65 Dividend Aristocrats (with important financial metrics such as dividend yields, P/E ratios, and dividend payout ratios) by clicking the link below:
Click here to download your Dividend Aristocrats Excel Spreadsheet List now.
Casinos are not without a fair amount of risk. Casinos are highly vulnerable to recessions, as consumers typically cut back heavily on gaming when the economy enters a downturn. The four major casino stocks saw their earnings collapse during the Great Recession. A similar impact has taken place to start 2020 due to the coronavirus crisis, which has battered the casino industry.
We have analyzed the major casino stocks in the Sure Analysis Research Database, which ranks stocks based upon the combination of their dividend yield, earnings-per-share growth potential and valuation to compute expected total returns. In this article, we will compare the expected 5-year total annual returns of the four major casino stocks.
Table Of Contents
For this article, stocks are ranked in order of least attractive to most attractive. While 5-year expected returns are incorporated in the rankings, we have also utilized a qualitative screen based on balance sheet strength and overall business quality.
You can instantly jump to a particular section of the article using the links below:
Casino Industry Overview
The casino industry is in severe distress right now. The spreading coronavirus and resulting global recession have taken their toll on the casino stocks. The large U.S. casinos are heavily reliant on Macau, the largest gaming market in the world and the only market in China where casinos are legal. As a result, these stocks are very sensitive to any developments that affect the gaming activity in Macau.
This was a significant concern several years ago. In 2014, China initiated an anti-corruption regulatory crackdown, which greatly reduced the gaming activity in the area. Fortunately for the casinos, the downturn lasted for approximately two years and gaming activity in Macau recovered thereafter. Then the gaming activity in Macau faced another headwind, namely the trade war between the U.S. and China.
This headwind lasted for only about a year but now Macau is facing its strongest challenge ever, the outbreak of coronavirus, which has caused a huge hit in the gaming business. Casinos were shut down for an extended period due to the coronavirus. Visa restrictions have also added to the decline in gaming activity in Macau.
As a result, gross gaming revenue in Macau plunged 94.5% in August, compared with the same month last year. Gross gaming revenue in Macau declined 81.6% through the first eight months of 2020. The high sensitivity of casino stocks to all the developments related to China and their pronounced cyclicality means that investors should pick casino stocks carefully.
Top Casino Stock #4: Wynn Resorts (WYNN)
Wynn Resorts owns and operates Wynn Macau and the Wynn Palace in Macau, as well as Wynn Las Vegas and Encore in Las Vegas. Since Wynn Resorts is highly leveraged to the gaming activity in Macau, it saw its earnings collapse and it cut its dividend by 62% in 2015-2016 due to the Macau downturn that was caused by the anti-corruption regulatory crackdown in the area. But as Macau strongly recovered in the last three years, Wynn Resorts returned to growth.
Unfortunately, the company is now facing the headwind of coronavirus in all the regions in which it operates. Wynn Resorts reported earnings results for the second quarter on 8/4/2020. Revenue declined 95% year-over-year to $85.7 million, which was $190 million less than expected. The company lost $6.14 per share in the quarter, missing estimates by $1.23. Adjusted property EBITDA was a loss of $322.9 million compared to estimates of a loss of $314 million. This compared unfavorably to adjusted EBITDA of $480.6 million in the second quarter of 2019.
Results for Wynn Resorts were once again severely impacted by the COVID-19 pandemic as properties in Macau were closed for 15 days. Las Vegas operations didn’t open until June 4th.Wynn Palace revenues declined 98.6% as a result. Revenues for Wynn Macau decreased 97.8% while Las Vegas decreased 86% year-over-year. Wynn Resorts suspended its dividend in an effort to conserve capital. Consensus estimates call for a loss of $11.52 per share for 2020.
On the bright side, casinos are gradually reopening, and Wynn Resorts seems to have ample room to grow in the upcoming years thanks to its promising growth pipeline.
Source: Investor Presentation
The company has made progress in the design of Crystal Pavilion in Macau, which will be a major tourist attraction. In addition, Encore Boston Harbor opened in June-2019 and has exhibited strong performance so far so it has promising growth prospects ahead thanks to expected ramp-up in activity.
Moreover, the company has been caught off guard, with total current and long-term debt outstanding of $12.78 billion and cash and cash equivalents of $3.80 billion. Therefore, the stock is carrying an increased amount of risk right now due to its high level of debt.
However, we believe that the coronavirus crisis will not last beyond this year and we view the long-term growth prospects of the company as intact. We expect 4% annual EPS growth through 2025. Using the company’s current assets, return on assets of 5.6% over the last decade and share count, we believe Wynn Resorts has earnings power of $1.89. We will use this figure to calculate fair value and projected return.
Based off of the earnings power estimate for 2020, the stock is currently trading at a P/E ratio of 44, which is higher than its historical average of 30.1. However, the stock traded at abnormally high P/E ratios in some years due to depressed earnings in those years.
For instance, the abnormally rich valuation of the stock during 2015-2017 resulted from the market’s view that the downturn in Macau was temporary. Our target P/E ratio of 18 reflects uncertainty regarding Macau and the coronavirus. If shares reverted to our target P/E by 2025, then valuation would be a 16% headwind to annual returns over this time period.
If the stock reaches our fair valuation level over the next five years, it would reduce shareholder returns by 16%, effectively wiping out earnings growth and dividends over that time period. The stock is markedly volatile due to its high debt load, which is an added risk factor.
As a result, only those who can stomach extreme stock price volatility and have confidence in the ability of Wynn Resorts to navigate through the current crisis should consider buying the stock.
Top Casino Stock #3: MGM Resorts (MGM)
MGM Resorts owns and operates casinos, hotels and conference halls in the U.S. and China. The company has the least exposure to Macau in this group of stocks. As a result, it suffered much less than its peers from the trade war between the U.S. and China and the protests of people in Macau a few months ago.
However, the company is highly exposed to the outbreak of coronavirus, just like its peers. Due to the rapid spread of the coronavirus, MGM Resorts suspended all its casino operations in Las Vegas on March 16th and did not accept hotel reservations for the dates prior to May 1st. The company also closed its casino in Maryland.
In late July, MGM Resorts reported (7/30/20) financial results for the second quarter of fiscal 2020. The company began reopening its U.S.properties in the quarter but its revenue plunged -91% over last year’s quarter due to the suspension of the operations of the company in the U.S. and a collapse in gaming revenues in Macau caused by travel restrictions and social distancing.
Source: Investor Presentation
As a result, MGM Resorts switched from a profit of $0.23 per share in last year’s quarter to an adjusted loss of -$1.52 per share.
Due to the unprecedented downturn that has resulted from the pandemic, MGM Resorts cut its dividend by 98% in April. Moreover, in May, it issued $750 million of 5-year bonds at 6.750%. The high interest rate reflects the desperation of the company for funds and the high debt load of the company. Net debt is $20.0 billion, which is nearly twice the current market cap of the stock.
On the positive side, on August 20th, 2020, IAC (IAC) reported a 12% stake in MGM Resorts for approximately $1 billion. IAC has a portfolio of brands and digital expertise, which is expected to help MGM Resorts leverage its digital assets. IAC will join the Board of Directors of MGM Resorts. The stock jumped 12% on the announcement.
Nevertheless, due to the headwind of coronavirus, along with a huge debt load, shareholders should not expect a material boost in dividends and share repurchases for the foreseeable future. That said, the company has a positive long-term outlook for conventions and sports betting in the domestic market, as well as the ramp-up of the recently-built MGM Cotai resort, MGM Springfield, and Park MGM.
As soon as the coronavirus crisis comes to an end, MGM Resorts will benefit from these growth drivers. The company will also enhance its earnings growth via its initiative “MGM 2020”, which aims to expand margins by reducing operating costs and enhancing the efficiency of the company.
Due to the headwind from coronavirus, we expect MGM Resorts to report a net loss in 2020. Earnings-per-share are expected to gradually turn positive, with expected annual growth of 5% through 2025. After the massive dividend reduction, returns from dividends will be negligible until the full dividend is restored. Finally, a contracting valuation multiple could be an additional headwind for shareholders. Overall, we expect negative total returns in the mid-single-digits over the next five years.
Top Casino Stock #2: Melco Resorts (MLCO)
Melco Resorts owns and operates casino gaming and entertainment casino resort facilities in Asia. As Melco Resorts is the most leveraged to the gaming activity in Macau in this group of stocks, it is the most vulnerable company to the downturn in the area due to the outbreak of coronavirus.
Melco Resorts will greatly benefit as the US slowly returns to a more ‘normal’ level of activity as COVID-19 fears and cases hopefully decline. A COVID-19 vaccine would likely be a major boost for the company.
In 2019, Melco Resorts grew its revenue 11% and its earnings per share 15%, primarily thanks to its strong performance in the mass market table gaming activity. But conditions have predictably reversed, with second-quarter revenue declining 88% and adjusted property EBITDA declining to a loss of $156.3 million.
Source: Investor Presentation
As soon as the effect of coronavirus begins to fade, the company has promising growth prospects ahead. It will benefit from the ramp-up of activity in its Morpheus Resort, which opened in mid-2018, and attract an increasing number of visitors in Cotai thanks to improvements in mass transportation.
Melco Resorts is also expanding its City of Dreams in Macau and is taking steps to open an integrated resort in Yokohama, Japan. All these initiatives are likely to be significant growth drivers as soon as Macau returns to normal.
On the other hand, due to its extreme leverage to gaming activity in Macau, the stock is highly vulnerable to any negative development related to coronavirus. Therefore, despite the promising growth prospects, we hold modest expectations for Melco, due to its extreme leverage to the activity in Macau.
It is worth noting that the gaming activity in the area was facing another headwind, protests from civilians, before the outbreak of coronavirus. Overall, we expect 2% average annual growth in earnings per share over the next five years.
The company is expected to post a significant loss for 2020. Earnings-per-share are expected to recover to $0.11 in 2021 and $1.08 in 2022. In a normalized economic backdrop, this would mean the stock trades for a P/E ratio of approximately 18, based on 2022 earnings. We view the stock as fairly valued.
Therefore, shareholder returns will be fueled by earnings-per-share growth. The stock had a 4%+ yield recently, but the company has suspended its dividend for the foreseeable future in an effort to preserve cash. Therefore, total returns are expected at just ~2% per year until the dividend is restored.
Given its healthy balance sheet, the company is likely to resume paying dividends once the coronavirus crisis ends. On the other hand, income-oriented investors should remain cautious, as the company is highly vulnerable to economic downturns and is very sensitive to any casino-related policy change in China and the ongoing coronavirus crisis.
Top Casino Stock #1: Las Vegas Sands (LVS)
Las Vegas Sands is a leading developer and operator of integrated resorts in the U.S. and Asia. Due to the outbreak of coronavirus, Las Vegas Sands is facing strong headwinds in Macau and in the U.S. As mentioned above, gaming activity has collapsed in Macau. In addition, due to the propagation of the virus in the U.S., all the casinos in Las Vegas were closed for a considerable period. As a result, Las Vegas Sands will incur a significant hit to its earnings this year.
On the other hand, beyond this year, Las Vegas Sands has promising growth prospects ahead. As Japan legalized casino gambling three years ago, Las Vegas Sands has announced that it intends to open integrated resorts in Tokyo and Yokohama. The company is the favorite bidder in this contest, which is expected to be a significant growth driver, though it will take a few years until the company earns a license and builds its new properties in Japan.
Not only do we see potential for strong earnings growth along with a high dividend yield for this stock, Las Vegas Sands also earns the top ranking because of its strong balance sheet and healthy liquidity.
Source: Investor Presentation
Furthermore, Las Vegan Sands continues to pursue growth by expanding and upgrading its Macau properties. The company launched Four Seasons Tower Suites Macao last year and it expects to perform its grand opening this year while it also expects to launch the Londoner Macao within 2020-2021 and expand Marina Bay Sands in Singapore.
In addition, Las Vegas Sands will benefit from the debut of the light rail system connecting Macau to the entire China rail network. This project will significantly increase the traffic to the casinos in Macau. Thanks to all these growth drivers and given the suppressed earnings expected this year, we expect the company to grow its earnings per share by about 4% per year over the next five years.
Las Vegas Sands stock previously offered a hefty dividend of $3.08 per share annualized, but the company suspended its dividend in 2020 amid the coronavirus pandemic. If the company were to reinstate its dividend at the same level, shares would yield nearly 6% at the current stock price.
The company is expected to see earnings dry up in 2020; our estimate of its full earnings power in a normal economy is annual earnings-per-share of $3.20. Based on this, the stock has a price-to-earnings ratio of 16.6, which is lower than our fair value estimate of around 17.0. Therefore, we see Las Vegas Sands stock as the only undervalued casino stock.
We also believe Las Vegas Sands has the strongest balance sheet. This means it is likely that the company will easily navigate through the ongoing coronavirus crisis and will enjoy a strong recovery whenever the headwind disappears from the horizon.
Final Thoughts
Gaming activity in Macau enjoyed a strong recovery from 2017-2019. But the coronavirus pandemic brought the recovery to a halt. Macau is now facing another severe downturn, due to the outbreak. The same is true for the U.S. as well, as the coronavirus crisis has resulted in weak demand. As a result, all the above casino stocks are going through a fierce downturn right now.
Melco Resorts seems the least attractive choice whereas Las Vegas Sands has by far the most attractive risk/reward profile. Wynn Resorts and MGM Resorts offer a lower expected return than Las Vegas Sands. Additionally, we prefer Las Vegan Sands for its stronger balance sheet, which is paramount during severe downturns.
While we expect the coronavirus crisis to end later this year, no one is absolutely sure when this crisis will end. To provide a perspective for the severity of the downturn, all the U.S. casino companies asked Congress for emergency financial help, as several industries have been impacted by coronavirus. Certain gaming regions like Las Vegas are preparing to reopen, which would be a major positive step for the casinos.
That said, casino operators will likely see profits evaporate and report significant losses, at least for one quarter but potentially for 2020. There is also the potential for further dividend cuts or suspensions across the industry, if the crisis continues for the remainder of 2020.
It is thus critical for investors to make sure that their companies can easily endure a prolonged crisis without being devastated. Therefore, the superior balance sheet of Las Vegas Sands is a crucial parameter and helps explain the fact that the market has punished Las Vegas Sands much less than its peers in the ongoing downturn.