Gaming stocks that could be 2023 winners include Wynn Resorts, Red Rock Resorts and Caesars Entertainment
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The 2023 outlook for the gaming sector has plenty of wildcards in play - including a valuation reset on iGaming and sports betting businesses with interest rates tracking higher, broad concerns on consumer discretionary spending, and cannibalization risks for some casino operators.
Despite the expectation for a choppy backdrop, there are plenty of reasons for investors to place new bets.
Deutsche Bank selected Wynn Resorts (WYNN) and Las Vegas Sands (LVS) as its top two picks for 2023 in the gaming sector on the expectations for profitable growth. Meanwhile, Caesars Entertainment (CZR) and MGM Resorts International (MGM) are also said to be setting up for a strong year.
"While there are surely reasons for caution in the Las Vegas Strip outlook for 2023, we believe the growth drivers (group strength/ international visitor return/event calendar) are compelling, on a relative basis, and we believe both CZR and MGM are poised to outperform peers in domestic regional markets, given company specific initiatives and comparisons."
Within regional gaming, analyst Carlo Santarelli thinks relative value is the key for 2023. Red Rock Resorts (RRR) tops the list due to its organic growth pipeline and continued expense disciplines in a sturdy Las Vegas locals market. Boyd Gaming (BYD) also get a callout as a compelling relative way to play the group.
CBRE Equity analyst John DeCree thinks the real story on the Strip is the surge in group and convention business, which was up 32% year-over-year at the end of October and 20% higher than the 2019 tally. Total visitation increased 7.3% year-over-year to 3.6M to climb to within 1% of the pre-COVID levels. DeCree expects the accelerating group and convention business will have a material positive impact on EBITDA and is part of CBRE's bullish thesis on the Las Vegas Strip in general. The casino stocks with the highest exposure to Las Vegas are MGM Resorts (MGM), Caesars Entertainment (CZR), Vici Properties (VICI), Golden Entertainment (GDEN), and Wynn Resorts (WYNN). Boyd Gaming (BYD) and Red Rock Resorts (RRR) also have indirect exposure to Strip spill-over.
Meanwhile, Bank of America is incrementally bullish on the Macau sector. Despite uncertainty regarding the economic reopening in China and geopolitical wildcards, Macau-exposed names are seen having another ~25% upside if they fully recover EBITDA and valuations to pre-COVID levels. Las Vegas Sands (LVS), MGM Resorts International (MGM), and Wynn Resorts (WYNN) were all given higher price objectives by the firm off higher multiples with recovery potential offset by low visibility on geopolitics and COVID recovery. Other firms have also warmed up to Macau stocks after China's State Council announced a new 10-point plan to ease COVID restrictions and top officials continue to soften the tone on the virus. The new rules include pulling back on mass testing, quarantine requirements and reducing the use of the health code system. The Macau sector also received a boost recently when the current license holders were renewed to remove an overhang on the sector. Melco Resorts & Entertainment (MLCO), SJM Holdings (OTCPK:SJMHF) and Galaxy Entertainment (OTCPK:GXYEF) have been getting the most attention from investors heading into 2023.
The casino/iGaming/sports betting stocks that have performed the best in 2022 and head into the new years with some momentum include Las Vegas Sands (LVS) +25.2%, Melco Resorts & Entertainment (MLCO) +11.2%, and Monarch Casino & Resort (MCRI) +9.8%.
On a valuation basis, Century Casinos (CNTY) and Boyd Gaming (BYD) trade with the lowest forward price-to-earnings ratios.
On a Seeking Alpha Quant Rating basis, stocks with a Buy rating include Light & Wonder (LNW), International Game Technology (IGT), Monarch Casino & Resort (MCRI), Caesars Entertainment (CZR), and Genius Sports (GENI).