Posted on: January 10, 2022, 01:02h.
Final up to date on: January 10, 2022, 01:36h.
In a sweeping commentary on on line casino shares at present, Financial institution of America analyst Financial institution of America analyst Shaun Kelley recommends specializing in high quality and worth alternatives within the house.
In a word to purchasers, Kelley highlights a minimum of seven gaming names, talking bullishly on a quartet whereas downgrading a trio. Among the many names the analysts like as high quality and worth performs are Boyd Gaming (NYSE:BYD) and Churchill Downs (NASDAQ:CHDN). The duo is off a mean of three.5 p.c to start out 2022. However that’s considerably much less dangerous than the begin to the yr for a slew of on line casino shares.
Las Vegas-based Boyd runs 28 gaming venues throughout 10 states, together with 11 in its residence metropolis, and it’s that publicity to the native market that makes the corporate certainly one of Wall Street’s preferred gaming ideas for 2022.
Each Boyd and Churchill are forecast to generate spectacular free money move this yr – a top quality trait – and every is shopping for again their very own shares, signaling administration teams see value in those stocks. Talking of worth, the Kentucky Derby operator could also be providing that, buying and selling round $223, with a consensus value goal of just about $280.
Challenges for Las Vegas Sands, Others
Whereas Kelley sees so much to love with Boyd and Churchill Downs, he’s much less smitten by Gaming and Leisure Properties (NASDAQ:GLPI), Las Vegas Sands (NYSE:LVS), and Purple Rock Resorts (NASDAQ:RRR).
He downgrades all three names to “underperform,” and within the case of GLPI, it’s a double downgrade, as a result of the inventory goes from “purchase” to “underperform,” whereas the opposite two had been beforehand rated “impartial.” Within the case of LVS, it’s the identical outdated tune: Macau. Ongoing lethargy on the planet’s largest on line casino hub explains why so few on Wall Street are bullish on Sands at present.
We see continued threat from COVID-related disruption and don’t see a easy or straightforward exit from the implications for Macau of China’s zero tolerance COVID coverage,” stated Kelley. “As well as, we expect key supply markets round Southeast Asia might weigh on the tempo of restoration in Singapore.”
The analyst provides concessionaires might pay extra for Macau licenses when these permits are renewed, leading to a decrease return on invested capital, whereas maybe hindering shareholder reward plans.
Relating to the downgrade of Purple Rock, Kelleys says the operator could possibly be weak to powerful comparisons following a powerful 2021, and rising prices in a good Las Vegas labor market. With regards to GLPI, he says that gaming actual property agency has extra inflation safety than rival VICI Properties (NYSE:VICI).
Excessive Beta Concepts
Kelley believes larger beta on line casino shares might bounce again within the second half of 2022, as estimates and margins see decreased volatility. He likes Caesars Leisure (NASDAQ:CZR) and Penn Nationwide Gaming (NASDAQ:PENN) in that group.
Presently, there’s no scarcity of help for Caesars, owing to what analysts view as its favorable mixture of Las Vegas and regional publicity, coupled with a growing iGaming and sports activities wagering footprint.
With Penn, sentiment appears to be shifting to acknowledgment that the inventory was battered an excessive amount of final yr and that buyers might have overlooked what’s a powerful portfolio of land-based gaming property.