You can call it the Trump Bump.
Stocks, including, finally, those of brick-and-mortar casino operators, jumped after President Trump announced a truce in his trade war against China. On the day after the announcement operators bounced 5 to 8 percent, including those large and small, Macau, Las Vegas and regionally oriented.
The gains, though more modest, continued the next day.
Obviously, they did not advance alone. It can be argued that casino stocks were simply carried along like ore in a slurry by an overall upward market. But the fact is they advanced sharply, which was welcomed after a distressingly long period of underperformance.
Of course, two days does not a trend make. And there are a lot of worries out there about the near future, such as whether the impacts of the tariff war are still to hit the economy in terms of higher prices, product shortages and consumers who are at least uneasy if not scared or cash-strapped.
Still, recent stock prices and reports by management teams of stabilized business and projections of modest growth for the remainder of the year give some hope that valuations have finally bottomed and might be headed back up.
CEOs and CFOs on their first-quarter conference calls were nearly unanimous in their more sanguine assessments. Most made several assertive pronouncements of continued and increased stock repurchases given what several called “dislocations” between stock prices and business values and prospects.
Certainly, the negative cases for casino stocks have been made and are now well understood, if not taken as gospel, by investors: Macau has Chinese economic and political risks, the industry’s growth phase is largely over for regional casinos, and online gaming and the proliferation of various forms of gray gaming are chipping away at regional revenues, threatening an actual decline in financial performance in some markets.
But there are positives, too. Las Vegas Sands might have the greatest exposure to Macau, but it also owns the world’s greatest casino in Singapore and has ambitious expansion in store there.
MGM Resorts, Caesars and Penn Entertainment have their own digital operations to grow. Boyd owns 5 percent of sports betting giant FanDuel and has its own iCasino. Wynn in two years will open a spectacular casino in Dubai and will have a monopoly for the foreseeable future in what some believe is a $5.5 billion market. Red Rock Resorts, Golden Entertainment and Monarch Casino are Nevada locals operators and no one yet sees an end to Nevada’s population growth.
Even its harshest critics admit that Full House Resorts has a developing goldmine in suburban Chicago. Caesars and Penn are past or near ending capital projects, meaning more money coming in and less going out. Red Rock and Churchill Downs have step-by-reliable-step expansions in the works. MGM, Wynn, LVS, Golden and Monarch are ambitious share repurchasers. Almost all are reducing debt ratios.
The stocks of most casino companies could rise 50 percent just to get back to historic valuations. And that doesn’t count those with revenue growth built in, thanks to expansions like Red Rock and Wynn.
In brief, now might be the time for value-oriented investors to rediscover the brick-and-mortar casino.
