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The Zacks Gaming industry benefits from favorable developments in Macau's gaming revenues and strong demand for sports betting. The industry is experiencing an upside thanks to increased visitation and spending per visit, especially from younger demographics. Subsiding inflation is also likely to aid the industry. Stocks like MGM Resorts International, Boyd Gaming Corp. and PlayAGS, Inc. will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that own and operate integrated casinos, hotels and entertainment resorts. Some industry players also deliver technology products and services across lotteries, electronic gaming machines, sports betting and interactive gaming. Some firms develop and operate gaming establishments and associated lodging, restaurants, horse racing and entertainment amenities.
Many companies are involved in developing and selling gaming applications. E-sports or sporting events or tournament services, content management systems, video software, mobile applications and e-sports data platform solutions are provided as well.
Key Themes Shaping the Gaming Industry
Macau Gaming Revenues Improving: The industry benefits from improving visitation. In June, Macau's gross gaming revenues (GGR) increased 16.4% year over year. Robust investment will continue to aid the gaming industry in Macau. Casino operators are adopting a disciplined operational strategy by streamlining business processes, enhancing marketing approaches and renegotiating contracts with vendors and third parties.
There is an intense emphasis on improving service quality and staffing levels to cater to gamers better. According to various media reports citing recent data from Goldman Sachs, Macao is expected to generate $29 billion in gross gaming revenue GGR this year. This forecast represents 82% of the annual revenue levels seen before the Covid-19 pandemic in early 2020.
Robust U.S. Commercial Gaming Revenues: The gaming industry in the United States continues to boost investors' sentiment. Per the American Gaming Association data, revenues from gambling hit a record high of $17.67 billion in first-quarter 2024. The U.S. gaming industry will continue to improve.
Sports Betting a Major Driver: The legalization of sports betting in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire has been driving growth for a while. Bettors can place wagers via digital platforms in Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona, Montana, Colorado and other states. Some popular gaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and BetMonarch.
Interest Rates: The prolonged inflation, culminating in the highest U.S. interest rates, has hurt the industry. Interest rates are at record-high levels. The Federal Reserve hiked interest rates by 525 basis points since March 2022 in its fight to bring down 40-year high inflation. The campaign worked with inflation declining sharply in 2023. On a year-over-year basis, CPI rose 3% in June following a 3.3% increase in May, recording the smallest jump in the past 12 months. The June CPI reading also surpassed analysts' expectations of a rise of 0.1% monthly and 3.1% year over year.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Gaming industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #105, which places it in the top 42% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Since Mar 31, 2024, the industry's northbound estimate for the current year increased 12.5%.
We will present a few gaming stocks that you can add to your investment portfolio, given their strong fundamentals. But it's worth looking at the industry's shareholder returns and its current valuation first.
Industry Underperforms the S&P 500
The Zacks Gaming industry has lagged the S&P 500 Index and the broader Zacks Consumer Discretionary sector in the past year.
The industry has increased 5.3% over this period compared with the S&P 500 Index's increase of 22.6%. In the same time frame, the sector has declined 0.8%.
Gaming Industry's Valuation
Since gaming companies are debt-laden, valuing the same based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio makes sense. The industry currently has a forward 12-month EV/EBITDA ratio of 16.61. The space is trading at a discount compared with the market at large, as the forward 12-month EV/EBITDA ratio for the S&P 500 is 25.11.
In the past five years, the industry has traded as high as 19.34X and as low as 7.85X, with a median of 11.25X.
3 Gaming Stocks to Watch For
PlayAGS: The company's investments in research and development, as well as sales and product management, have resulted in a diverse portfolio of EGM games and gaming cabinets. Additionally, AGS benefits from substantial contributions from its Table Products and Interactive segments as well.
This Zacks Rank #1 (Strong Buy) company's shares have surged 74% in the past year. Earnings estimates for 2024 have increased to 53 cents from 31 cents in the past 60 days. You can see the complete list of today's Zacks #1 Rank stocks here.
MGM Resorts: MGM Resorts is notably benefiting from increased business volume and travel activity at MGM China and luxury resort properties in Las Vegas. Sports betting and iGaming continue to be top growth drivers for the company. Also, the company's focus on international expansion, asset-light strategy and non-gaming activities bode well.
This Zacks Rank #3 (Hold) player's shares have increased 3.3% in the past three months. Moreover, earnings estimates for 2024 have increased 8.6% to $2.90 in the past 30 days.
Boyd Gaming: The company is likely to benefit from strong online gaming and management fees (from Sky River Casino). During first-quarter 2024, adjusted EBITDAR in the Online segment was $20.5 million, reflecting a sequential growth of 18.5%. For 2024, Boyd Gaming expects this segmental EBITDAR in the range of $60-$65 million. Management projects solid contributions from FanDuel, given its industry-leading position in online sports betting across the country.
Shares of this Zacks Rank #3 player have increased 8.6% in the three months. Moreover, BYD's 2024 earnings estimates have remained stable at 6.04% in the past seven days.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights MGM Resorts, Boyd Gaming and PlayAGS
For Immediate Release
Chicago, IL – July 26, 2024 – Today, Zacks Equity Research discusses MGM Resorts International (MGM - Free Report) , Boyd Gaming Corp. (BYD - Free Report) and PlayAGS, Inc. (AGS - Free Report) .
Industry: Gaming
Link: https://www.zacks.com/commentary/2308907/3-stocks-to-watch-from-the-promising-gaming-industry
The Zacks Gaming industry benefits from favorable developments in Macau's gaming revenues and strong demand for sports betting. The industry is experiencing an upside thanks to increased visitation and spending per visit, especially from younger demographics. Subsiding inflation is also likely to aid the industry. Stocks like MGM Resorts International, Boyd Gaming Corp. and PlayAGS, Inc. will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that own and operate integrated casinos, hotels and entertainment resorts. Some industry players also deliver technology products and services across lotteries, electronic gaming machines, sports betting and interactive gaming. Some firms develop and operate gaming establishments and associated lodging, restaurants, horse racing and entertainment amenities.
Many companies are involved in developing and selling gaming applications. E-sports or sporting events or tournament services, content management systems, video software, mobile applications and e-sports data platform solutions are provided as well.
Key Themes Shaping the Gaming Industry
Macau Gaming Revenues Improving: The industry benefits from improving visitation. In June, Macau's gross gaming revenues (GGR) increased 16.4% year over year. Robust investment will continue to aid the gaming industry in Macau. Casino operators are adopting a disciplined operational strategy by streamlining business processes, enhancing marketing approaches and renegotiating contracts with vendors and third parties.
There is an intense emphasis on improving service quality and staffing levels to cater to gamers better. According to various media reports citing recent data from Goldman Sachs, Macao is expected to generate $29 billion in gross gaming revenue GGR this year. This forecast represents 82% of the annual revenue levels seen before the Covid-19 pandemic in early 2020.
Robust U.S. Commercial Gaming Revenues: The gaming industry in the United States continues to boost investors' sentiment. Per the American Gaming Association data, revenues from gambling hit a record high of $17.67 billion in first-quarter 2024. The U.S. gaming industry will continue to improve.
Sports Betting a Major Driver: The legalization of sports betting in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire has been driving growth for a while. Bettors can place wagers via digital platforms in Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona, Montana, Colorado and other states. Some popular gaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and BetMonarch.
Interest Rates: The prolonged inflation, culminating in the highest U.S. interest rates, has hurt the industry. Interest rates are at record-high levels. The Federal Reserve hiked interest rates by 525 basis points since March 2022 in its fight to bring down 40-year high inflation. The campaign worked with inflation declining sharply in 2023. On a year-over-year basis, CPI rose 3% in June following a 3.3% increase in May, recording the smallest jump in the past 12 months. The June CPI reading also surpassed analysts' expectations of a rise of 0.1% monthly and 3.1% year over year.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Gaming industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #105, which places it in the top 42% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Since Mar 31, 2024, the industry's northbound estimate for the current year increased 12.5%.
We will present a few gaming stocks that you can add to your investment portfolio, given their strong fundamentals. But it's worth looking at the industry's shareholder returns and its current valuation first.
Industry Underperforms the S&P 500
The Zacks Gaming industry has lagged the S&P 500 Index and the broader Zacks Consumer Discretionary sector in the past year.
The industry has increased 5.3% over this period compared with the S&P 500 Index's increase of 22.6%. In the same time frame, the sector has declined 0.8%.
Gaming Industry's Valuation
Since gaming companies are debt-laden, valuing the same based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio makes sense. The industry currently has a forward 12-month EV/EBITDA ratio of 16.61. The space is trading at a discount compared with the market at large, as the forward 12-month EV/EBITDA ratio for the S&P 500 is 25.11.
In the past five years, the industry has traded as high as 19.34X and as low as 7.85X, with a median of 11.25X.
3 Gaming Stocks to Watch For
PlayAGS: The company's investments in research and development, as well as sales and product management, have resulted in a diverse portfolio of EGM games and gaming cabinets. Additionally, AGS benefits from substantial contributions from its Table Products and Interactive segments as well.
This Zacks Rank #1 (Strong Buy) company's shares have surged 74% in the past year. Earnings estimates for 2024 have increased to 53 cents from 31 cents in the past 60 days. You can see the complete list of today's Zacks #1 Rank stocks here.
MGM Resorts: MGM Resorts is notably benefiting from increased business volume and travel activity at MGM China and luxury resort properties in Las Vegas. Sports betting and iGaming continue to be top growth drivers for the company. Also, the company's focus on international expansion, asset-light strategy and non-gaming activities bode well.
This Zacks Rank #3 (Hold) player's shares have increased 3.3% in the past three months. Moreover, earnings estimates for 2024 have increased 8.6% to $2.90 in the past 30 days.
Boyd Gaming: The company is likely to benefit from strong online gaming and management fees (from Sky River Casino). During first-quarter 2024, adjusted EBITDAR in the Online segment was $20.5 million, reflecting a sequential growth of 18.5%. For 2024, Boyd Gaming expects this segmental EBITDAR in the range of $60-$65 million. Management projects solid contributions from FanDuel, given its industry-leading position in online sports betting across the country.
Shares of this Zacks Rank #3 player have increased 8.6% in the three months. Moreover, BYD's 2024 earnings estimates have remained stable at 6.04% in the past seven days.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.