The easing of restrictions on in-person casino visits due to success on the COVID-19 immunization front and growing interest in internet casinos have been fueling the industry's growth. According to the American Gaming Association's (AGA) Commercial Gaming Revenue Tracker, 2022 started with strong commercial gaming revenue in the United States, with February witnessing the sector’s highest gross revenue generation on record.
Furthermore, the State Gaming Commission has legalized app-based sports betting throughout the Empire State. Many companies working in this market are well-positioned to gain from increasing gambling legalization across the country. The global market for casinos is expected to reach $153.2 billion by 2026, growing at a 3.7% CAGR.
Given this backdrop, we believe that investing in fundamentally sound casino stocks Boyd Gaming Corporation (BYD) and Red Rock Resorts, Inc. (RRR) could be wise.
Boyd Gaming Corporation (BYD)
Las Vegas-based BYD, along with its subsidiaries, functions as a multi-jurisdictional gaming company. It has three operational segments: Las Vegas Locals; Downtown Las Vegas; and Midwest & South. It is also engaged in owning and operating a travel agency.
Last month, BYD's wholly owned subsidiary, Boyd Interactive Gaming Inc., agreed to acquire Pala Interactive LLC and its subsidiaries for total cash consideration of $170 million. Keith Smith, President and Chief Executive Officer of Boyd Gaming, said, "By integrating online casinos with our existing land-based operations, we will be able to further leverage and monetize our expansive customer database and the amenities of our nationwide portfolio of properties, driving growth in both our land-based and iGaming operations."
For the fourth quarter, ending Dec. 31, 2021, BYD's sales increased 27.9% year-over-year to $516.21 million. Its adjusted EBITDA amounted to $57.30 million, while its adjusted net earnings amounted to $5.93 million. Its adjusted EPS was $0.28 over the period.
Analysts expect BYD's revenue to increase 11.8% year-over-year to $842.25 million in the first quarter, ending March 31, 2022. The $1.21 consensus EPS estimate for the first quarter, ending March 31, 2022, represents a 30% improvement year-over-year. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 18.8% in price over the past nine months.
BYD's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
BYD is also rated an A grade for Quality and a B for Value and Sentiment. Within the Entertainment - Casinos/Gambling industry, it is ranked #3 of 33 stocks.
To see additional POWR Ratings for Growth, Stability, and Momentum for BYD, click here.
Note that BYD is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Red Rock Resorts, Inc. (RRR)
RRR in Las Vegas, together with its interest in Station Holdco and Station LLC, develops and operates casino and entertainment properties in the United States. Las Vegas Operations and Native American Management are the two operational segments. The company owns and operates nine gaming and entertainment facilities and 10 smaller casinos in the Las Vegas regional market.
RRR's net revenue increased 23% year-over-year to $422.35 million during the fourth quarter, ending Dec. 31, 2021. The operating income and earnings from the joint venture grew 104.1% from its year-ago value to $162.18 million. The EPS improved 325.6% from its prior-year quarter to $1.66.
The $2.92 consensus EPS estimate for its fiscal year 2023 represents an 8% improvement year-over-year. Analysts expect RRR's revenue to increase 14.4% year-over-year to $403.21 million for the first quarter, ending March 31, 2022. In addition, it has an impressive earnings history; it surpassed the consensus EPS estimate in three of the trailing four quarters. The company's shares have surged 44.3% in price over the past year and 29% over the past nine months.
RRR's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Quality. In the Entertainment - Casinos/Gambling industry, it is ranked #6.
In total, we rate RRR on eight distinct levels. Beyond what we have stated above, we have also given RRR grades for Growth, Value, Momentum, Stability, and Sentiment. Get all the RRR ratings here.
BYD shares were trading at $63.64 per share on Tuesday morning, up $0.48 (+0.76%). Year-to-date, BYD has declined -2.51%, versus a -7.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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