3 Outperforming Casino Stocks With Strong Top-Line Growth

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 |  Includes: MCS, MGM, MPEL
by: Kapitall

Consumer confidence has reached a 3-month high in the US and a 6-month high in Europe. This has positive indications for several industries including those focused on vacations and entertainment, a luxury often foregone in less optimistic times. With this in mind we decided to take a closer look at resort and casino stocks that could benefit from increased consumer spending.

To create the list below we began by analyzing the financials of 15 resort and casino stocks with market caps above $300 million for strong sales trends, specifically comparing growth in revenue to growth in accounts receivable. Since accounts receivable is the portion of revenue not yet received, and there is no guarantee the money will ever be received, the smaller the portion of revenue made up of receivables, the healthier the company's revenue.

We selected only the names seeing faster growth in revenue than accounts receivable year-over-year, as well as accounts receivable comprising a smaller portion of current assets over the same time period.

Next, we looked for strong momentum. Not only did we screen for casino stocks that outperformed the market over the last quarter, with quarterly performance above 10%, we wanted to make sure their momentum was still holding up.

To that end, our final list consisted of 3 companies are also rallying above their 50 and 200-day moving averages

A Closer Look:

The Gaming, Leisure and Lodging research team at Hedgeye Risk Management recently produced a report on MGM Resorts International (NYSE:MGM) with the main takeaway being: "We're still cautious on Las Vegas and see little near term growth." According to Hedgeye, overall fourth quarter earnings were in-line with expectations. International casino play was strong, and MGM was encouraged by the 6% increase in non-bacarrat play, which "implies improvement in the domestic player base." Increase in VIP volumes in Macau also contributed to the improving margins while fourth quarter revenue per average user or REVPAR came in at 1%, MGM expects first quarter 2013 REVPAR to be flat. It did mention that they expect an improvement in convention bookings for 2013 into 2014.

The List:

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

These stocks have several encouraging statistics. Use the list below as a starting point for your detailed analysis.

1. The Marcus Corporation (NYSE:MCS): Operates theatres, and hotels and resorts.

  • Market cap at $349.62M, most recent closing price at $12.83.
  • Revenue grew by 11.72% during the most recent quarter ($100.63M vs. $90.07M y/y). Accounts receivable grew by -6.75% during the same time period ($9.81M vs. $10.52M y/y). Receivables, as a percentage of current assets, decreased from 34.62% to 26.01% during the most recent quarter (comparing 13 weeks ending 2012-11-29 to 13 weeks ending 2011-11-24).
  • Performance over the last quarter at 37%.
  • The stock is currently trading 0.6% above its 50-day moving average, and 10% above its 200-day moving average.

2. MGM Resorts International: Operates casino resorts in the United States.

  • Market cap at $6.23B, most recent closing price at $12.74.
  • Revenue grew by 0.96% during the most recent quarter ($2,254.98M vs. $2,233.59M y/y). Accounts receivable grew by -11.01% during the same time period ($412.39M vs. $463.41M y/y). Receivables, as a percentage of current assets, decreased from 17.03% to 12.32% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • Performance over the last quarter at 36%.
  • The stock is currently trading 3% above its 50-day moving average, and 17% above its 200-day moving average.

3. Melco Crown Entertainment Ltd. (NASDAQ:MPEL): Engages in the development, ownership, and operation of casino gaming and entertainment resort facilities primarily in Macau.

  • Market cap at $10.35B, most recent closing price at $19.46.
  • Revenue grew by 9.27% during the most recent quarter ($1,101.81M vs. $1,008.35M y/y). Accounts receivable grew by 4.6% during the same time period ($322.52M vs. $308.35M y/y). Receivables, as a percentage of current assets, decreased from 20.48% to 11.73% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).
  • Performance over the last quarter at 43%.
  • The stock is currently trading 2% above its 50-day moving average, and 36% above its 200-day moving average.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Sabina Bhatia, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.