Should You Buy Casino Stocks Right Now?
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Should You Buy Casino Stocks Right Now?

Should You Buy Casino Stocks Right Now?

It’s well-known that buying stocks comes with risk - especially now, at the time of the coronavirus pandemic.

While some are prepared to take on the hardest-hit cruise lines, airlines, and retail stocks, others are avoiding the risk altogether and playing very safe.

A risk that may pay off in the long run, however, is buying casino stocks. Hear us out: while there’s no predicting how long it will take for transport to get running again, or stores to open at full capacity, we know casinos are good at bouncing back.

Take Macau - it suffered an 87.8% revenue drop in February, but the region’s casinos have recovered well from previous pandemics, showing a level of resilience and proving that gamblers really will come back. 

Though limited air travel may reduce the number of visitors to some of the world’s most popular casinos, there’s absolutely no evidence from previous global health emergencies that people will permanently stop visiting casinos.

Investors should also take online casinos into account, which are no doubt growing in popularity during the lockdown period.

And it’s also important to remember that most casino operators have pretty strong balance sheets compared to others struggling during the coronavirus outbreak.

MGM Properties, Las Vegas Sands, and Wynn hold current ratios of 2.89, 1.44, and 1.44 again respectively- demonstrating their ability to remain solvent and meet short-term financial obligations.

Any number lower than 1.0 suggests the company may go into liquidation over the next year- Delta Airlines, for example, has a current ratio of 0.53.

The casino companies that are doing well now have worked for years to create that kind of stability - which puts a great load of confidence behind them.

MGM, for example, missed expectations when it announced its earnings last week - but still managed to add nearly $1 billion to its cash on hand when compared to the previous quarter.

While it doesn’t hold a strong presence in Macau, MGM has a large regional presence - casinos that patrons can drive to over the coming months when air travel is limited. The company said it would potentially start its Las Vegas reopening process with New York-New York and the Bellagio, but requires at least 30% occupancy for its cash flow to break even. 

Others, however, may decide that a safer play among stocks is Wynn or LVS, two large Macau kings who will see big financial gain when the region is up and running again. 

While the Las Vegas Strip closed over six weeks ago and is not expected to reopen soon, Macau’s table games were back up and running after just a 15-day closure in February.

Some Wall Street analysts are even suggesting investors buy all three to cover all eventualities.

Bank of America analyst Shaun Kelley recently told Yahoo Finance that investors shouldn’t expect business as usual in casinos for a while yet. He made clear that properties will implement social distancing at gaming tables and slot machines and will limit the number of patrons allowed on the gambling floor at any time.

Large events such as sports games are likely to remain banned for the foreseeable future, too, limiting the prospects for sportsbooks.

Kelley said, “Given the market’s reliance on air travel and large scale events, this suggests a full reopening of the Strip could take a significant period of time even if the virus remains under control.”

The analyst also told Yahoo the best way to play the situation, which is listed below:

  • Boyd Gaming Corporation (NYSE: BYD), Buy rating, $22 target.
  • Las Vegas Sands Corp. (NYSE: LVS), Buy rating, $61 target.
  • Wynn Resorts, Limited (NASDAQ: WYNN), Buy rating $85 target.
  • MGM Resorts, Neutral rating, $14 target.

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