No Santa Claus rally this year.
All the major U.S. stock market indices are in correction territory and seem determined to reach bear levels, if one assumes a 10 percent decline from peak is the former and 20 percent is the latter.
As of this writing, the Dow is down 15.2 percent and S&P 500 is off 16.2 percent. Things get worse for smaller stocks. Nasdaq is just short of the bear mark at minus 19.8 percent. The Russell 2000 crossed the threshold, down 23.4 percent.
Things have been even worse for gaming stocks. The Fantini North American Gaming index is down 39 percent, the World Index 40 percent and the Interactive Index is off 34 percent.
Or sample some individual companies. Want the glamor casino operators? Las Vegas Sands is down 38 percent and Wynn Resorts 52 percent.
Want big regional casino companies that have been enjoying stable business? Try Penn National down 49 percent and Boyd 50 percent.
Las Vegas is a boomtown. Yet LV-focused Red Rock Resorts is down 45 percent and Golden Entertainment an eye-popping 57 percent.
Ditto suppliers: IGT minus 53 percent, Scientific Games almost completely reversing its stunning run up of 2016 and 2017 with a stunning 75 percent run down. Australia-listed Aristocrat, which has torn the cover off the ball as a business, is paying a price as a stock, down 37 percent.
AGS is a supplier that, while down 40 percent from its peak, is still 16 percent above its January IPO price.
Nor are foreign stocks helpful. Galaxy Entertainment down 34.2 percent and Genting Malaysia minus 54.6 percent, as examples.
OK, what about those international companies jumping on the U.S. sports betting bandwagon? Nope. Consider Paddy Power Betfair at minus 32 percent, GVC down 42 percent, William Hill 55 percent and pure sports betting play Kambi off 23 percent.
If there is a relatively safe port in the storm it’s the gaming REITs.
Gaming & Leisure Properties is off 11 percent, MGM Growth Properties 11.6 percent and VICI 17percent. With GLPI’s 7.47 percent dividend yield, MGP’s 6.08 and VICI’s 5.57, investors are not all that far below break-even and they are way ahead of the overall market. Plus the REITs have the security of steady rents coming in.
The gaming stock crash has analysts doing unusual things, like cutting target prices while issuing buy ratings.
Carlos Santarelli of Deutsche Bank, for example, lowered his target on Penn National to $25 but reiterated his buy rating citing, among other things, a valuation of just 7.1 times next year’s forecast EBITDA and a free cash flow yield of 14.4 percent.
And even though his target price is lower, it is still well below PENN’s 52-week high of $36.90 and offers investors a 32 percent gain from here.
Nor is Santarelli alone. Analyst after analyst has been lowering targets while pointing out the reasonable valuations and the underlying strengths of gaming companies.
Still, stocks keep falling.
So where is bottom? Maybe a way off. A recession could bring the overall market down much further, taking battered gamers down regardless of today’s seemingly low valuations.
In other words, as bad as things have been for gaming stocks, the worst might not be over.
If there is bright note, it is that bargain hunters are being presented opportunities to buy low—if they have the resources to do so and the intestinal fortitude to hang on.
