May 24, 2023
Gambling-Related Stocks You Can Bet on in 2023
Exploring promising growth in the gambling sector, this article highlights various lucrative stocks, including Boyd Gaming Corp., Caesars Entertainment Inc., and Churchill Downs Inc., among others, offering profitable opportunities for investors in 2023.
- Caesars Entertainment Inc. Shows Potential Growth Following Deals with ESPN and CBS Sports to Become their Exclusive Odds Provider.
- Investments in Companies with Significant Slot Machine Income may be Wise, as Slot machines are Generally Leased, Creating Ultra-High Cash Flow Streams Over Many Years.
- Gaming Stocks Have Recently Been Both Over and Undervalued, and Therefore Tend to be Volatile Market Options.
Online gambling has taken the nation by storm, with Americans betting over $220 billion through legal sports gambling outlets in the past five years. But what if you want to bet on the future success of the gambling industry?
If so, this might be the time. The Dow Jones U.S. Gambling Total Stock Market Index has risen steadily for the last three months. Hedge Fund Performing Capital’s Howard Rosencrans notes that gaming operators and, to some degree, suppliers often become over or undervalued.
Rosencrans says that gaming stocks became “wildly overvalued” in 2021 due to a sharp increase in euphoria around online sports betting and its poster child, DraftKings. Rosencrans cautions that online sports betting is a low-margin business that requires massive marketing and promotional efforts, which have resulted in “mind-boggling” losses for the gambling companies involved.
However, Rosencrans also says that gambling has generally proven to be a recession-resistant business, and gaming suppliers are even less cyclical. Therefore, there are room for profits in gambling-related stocks. If you want to get in the game but prefer the stock exchange over the sports arena, the following gambling-related companies are publicly traded and poised for potential growth.
Boyd Gaming Corp. (BYD)
Boyd operates 28 gaming properties in 10 U.S. states and has recently increased its visibility thanks to its sports betting and online gaming partnership with FanDuel. Shares closed at $66.45 on Feb. 7, but Credit Suisse recently gave BYD an “outperform” rating with a price target of $82. Boyd reported a company record for fourth-quarter revenues of nearly $923 million, compared with a consensus analyst estimate of $853 million. Quarterly top-line revenue increased 4.9% year over year. Boyd may be a solid investment, shares recently trading at 11.3 times earnings. That compares nicely with the price-earnings ratios of industry peers such as Penn Entertainment, which is trading at nearly 25 times earnings. BYD stock is up 21.9% year to date as of Feb. 7.
Caesars Entertainment Inc. (CZR)
This historic Las Vegas casino owner now operates 50 casinos across the U.S. and owns the Caesars Sportsbook app. The company is back on its feet after casinos were largely shut down during the Covid pandemic quarantines, with ample support from industry analysts in early 2023. On Jan. 31, Deutsche Bank held its “buy” rating on Caesars and set a price target of $70 for its shares, up from $64. With CZR trading at $54.90 as of Feb. 7, the stock appears to have plenty of upside. Caesars is cashing in on a big Las Vegas comeback boosted by conventions returning to Nevada’s gambling and tourist mecca. In the third quarter of 2022, CZR reported a boost in hotel occupancy to 93.6% along with stronger gambling, dining and beverage volumes. The company’s brand should sparkle after its deal to rename the New Orleans Superdome to “Caesars Superdome,” along with a new partnership deal with ESPN and CBS Sports to be their “exclusive odds provider.”
Churchill Downs Inc. (CHDN)
Churchill Downs isn’t only the home of the Kentucky Derby; it’s also a huge sports betting and online casino platform. Analysts are high on CHDN, with Susquehanna reiterating its “positive” rating on the company and hiking its price target from $250 to $280 in January. At CHDN‘s price of $252.13 per share as of Feb. 7, that represents an 11.1% uptick in performance. A November 2022 deal with DraftKings to produce a joint horse-racing mobile betting app may sweeten the pot for investors in Churchill Downs. CHDN stock is up 19.2% on a year-to-date basis as of Feb. 7.
DraftKings Inc. (DKNG)
Although one of the top online sports gambling platforms, DraftKings stock struggled in 2022, as its share price fell a whopping 58.5%. However, DraftKings‘ stock price has been on the rise in early 2023, up 53.9% through Feb. 7. DKNG already operates in 22 U.S. states, but three large states – Florida, California and Texas – still have not green-lit legalized sports betting, and may not do so for years. These massive markets represent a tremendous growth opportunity, however, with the potential for millions of new customer sign-ups for DraftKings betting. DraftKings executives also appear to believe in the stock, with insiders purchasing 1 million shares of DKNG stock since December 2022.
Everi Holdings (EVRI)
Everi Holdings, a leading supplier of slot machines and the number one player in fintech kiosks for casino operators, has been highlighted in letters from both Performing Capital and DG Capital. Rosencrans said Everi represents 7% of their fund equity and is their largest gaming position. He described the company’s turnaround as “highly impressive,” adding that the company is “significantly deleveraged.” Since it announced record third-quarter results against a challenging comparison, The fund manager believes Everi is “firmly established in growth mode both as a slot supplier and fintech player.” The company also affirmed its guidance for another record year while continuing to buy back shares to return capital to shareholders. Everi has been quite active in M&A via small “tuck-in” deals to complement its offerings and enter new markets. Additionally, Rosencrans highlighted the company’s “cashless” gaming and other solutions. Only 12 to 18 months ago, investors were ascribing at least $500 million or $5 per share to that business alone. However, Rosencrans now believes no premium is being applied — even though the company continues to penetrate new casinos and jurisdictions. He sees cashless adoption as inevitable among all major gaming operators. As a result, heexpects Everi to enjoy another record year in 2023 as it continues to generate significant cash flow, warranting a “sharply higher multiple.” DG Capital has highlighted Everi Holdings in several of its past letters over the last few years, and it remained a top long position with a 5.3% weighting as of the fourth quarter. While Everi has been a long-term winner for the fund, it was listed as one of its biggest detractors during the fourth quarter. Although DG has been buying Everi since at least 2020, fund manager Dov Gertzulin restated his bull thesis in his third-quarter letter for 2021. He said the company was gaining market share in slot machines, which made up 10% of its new shipments that year, up from 6%. He also said the company was enjoying better economics in its premium games, in which it earns a share of the casino operator’s daily win totals.
Flutter Entertainment PLC (PDYPY)
This Dublin, Ireland-based sports betting leader owns some of the top brand names in the gambling sector, including FanDuel, PaddyPower and PokerStars. Stock market advisors believe that PDYPY offers investors more pricing stability compared with Penn Entertainment and DraftKings, with the stock up 3.6% over the past year and up 14.1% on a year-to-date basis through Feb. 7. Flutter plans to spin off FanDuel and list it on major U.S. exchanges in 2023, once it ties up some financial loose ends with Fox Corp. (FOXA), which won the right to purchase an 18.6% stake in FanDuel in November. If Flutter is able to work out the kinks the spinoff should prove profitable, given that FanDuel had positive earnings before interest, taxes, depreciation and amortization, or EBITDA, in the last few quarters and should end fiscal year 2023 firmly in the black. FanDuel as a stand-alone publicly traded company would also be worth consideration for early investment once the divestment is final.
Golden Entertainment (GDEN)
Golden Entertainment, Inc. is a Las Vegas Company that engages in the development, finance, management, and ownership of casino properties. It operates through Distributed Gaming and Casinos. The Distributed Gaming segment is involved in the installation, maintenance, and operation of slots and amusement devices in non-casino locations such as grocery, convenience and liquor stores, restaurants, bars, and taverns, and the operation of wholly owned branded taverns targeting local patrons. The casino segment focuses on owning and managing resort casinos. Rosencrans has noted that slot machines are generally leased, creating ultra-high cash flow streams over many years. Therefore, companies with high slot machine income such as Golden Entertainment may be worthy of a potential investment.
Las Vegas Sands Corp. (LVS)
The Las Vegas Sands Corp., headquartered in Las Vegas, Nevada, engages in the development of destination properties. Its properties feature accommodations, gaming, entertainment and retail, convention and exhibition facilities, celebrity chef restaurants, and other amenities. It operates in Macao, Singapore, and United States. The Macao segment handles the operations of The Venetian Macao; Sands Cotai Central; The Parisian Macao; The Plaza Macao and Four Seasons Hotel Macao; and Sands Macao. The Singapore segment includes the Marina Bay Sands. The United States segment consists of Las Vegas Operating Properties and Sands Bethlehem. The Sands is worth mentioning not only for its current holdings, but also for its bullish involvement in casino lobbying efforts in the State of Texas. Although Texas legislators appear to have passed on the opportunity to propose a constitutional amendment to legalize sports gambling in the current term, look to the Sands as a potential big winner if resort-style casinos come to the great State of Texas, and therefore a long-term investment opportunity.
MGM Resorts International (MGM)
Like Caesars, MGM should benefit from the Las Vegas resurgence, with more trade groups and business conferences landing on the Vegas strip in 2023. The company is also well positioned in online sports gambling with its BetMGM sports betting division, which accounts for 30% of the total U.S. digital casino and online poker market, and a 13% share of the U.S. sports betting market. BetMGM also reported a 51% boost on a state-by-state basis in its digital gaming operations, which should lift profits given the burgeoning popularity of online gaming across the U.S. Analysts are bullish on Las Vegas in general, and MGM in particular. The research firm Hedgeye called Vegas‘ fundamentals “very bullish” in mid-January, and it put MGM on its new “long ideas” list, citing promising Las Vegas convention planning and visitation trends. Be sure to keep an eye on current Las Vegas convention numbers as you consider stocks such as Caesars and MGM.
Penn Entertainment Inc. (PENN)
Penn Entertainment regional gambling operator not only owns the popular digital sports and entertainment platform Barstool Sports, but it also runs 43 casino and racetrack properties across the U.S. PENN stock was already up 15.8% on a year-to-date basis through Feb. 7 after a rough 2022 (down 42.7% for the year) and is gaining traction with industry analysts. JMP Securities analyst Jordan Bender previously reiterated his “buy” rating on PENN and set a price target of $45 per share.