Despite recovering from the March COVID panic, most gaming stocks remain below pre-pandemic highs of early this year.
There are four exceptions among major U.S. land-based companies. Boyd Gaming, Churchill Downs, Penn National and Scientific Games are actually higher today than they were in January and February.
As of this writing, Boyd is 12 percent higher than its February peak, Churchill Downs is up 10 percent and Sci Games 23 percent. The big winner is Penn National, a whopping 76 percent higher.
The three casino operators among this Fab Four share one important factor. They all get their revenues from the American hinterlands and not the Las Vegas Strip, though Penn National gets a small amount from Tropicana in Las Vegas.
The story for regional casino operators is now well known. And it was so universally stated by CEOs and CFOs on third quarter investor calls that they could all have been reading from the same script—business has rebounded, they’re getting more money from their best players, costs have been cut in ways that will become permanent, meaning more revenue will fall to the bottom line even after business fully recovers.
Hosannahs arose from Wall Street lyrically lifting stocks above their calamitous March levels – but not above their previous highs for most.
So, what else gives with the Fab Four? Two words—sports betting.
Everyone knows investors are crazed about sports betting’s potential. Fantini’s Sports Betting Index is up 90 percent this year. That compares to declines for the broader Fantini indices. The North American Index, which is a cross-section of gaming companies, is down around 10 percent year-to-date. The Global Top 30, which comprises the 30 largest gaming companies in the world as measured by market capitalization, is down 4 percent as of this writing.
Each of the Fab Four casino operators has a sports betting story to tell.
Penn National has the best story in its Barstool Sportsbook app that excites investors because of the potential 60 million Bar Stool users combined with PENN’s own database of millions of gamblers.
Churchill Downs has its own betting platform, so it can make money from other operators using the platform and directly from bettors wagering directly through its own operations.
Boyd has a network of casinos in sports betting states and owns 5 percent of FanDuel, a pure sports betting company.
Scientific Games has a sports betting story, too with its technology platform and holistic approach to sports betting products and services. And, just as regional casinos provide ballast for the three operators, Sci Games benefits from the steady revenues generated by its lottery business. A case can also be made that Sci Games stock was oversold even before COVID and a bounce back was inevitable.
In short, these four companies combine steady businesses with sports betting as a growth kicker.
The twin to sports betting this year has been iGaming as more U.S. states legalize online gambling. It is no surprise then that the best performing stock of a major gaming company is an iGamer. That is Evolution, the Stockholm-listed provider of live-deal online casino games to iGaming operators. Evolution is up over 150 percent this year, more than double the 72 percent rise in Fantini’s Interactive Index.
Meanwhile, gaming stocks are not necessarily out of the woods. COVID is causing casino closures to resume in some jurisdictions and the economy is showing some wear from its resurgence.
If you hear a sound in the distance, it is not a trumpet calling all clear. It is a warning bell for bulls and perhaps an alert to any cash-laden bears of another buying opportunity ahead.
