From Penn National To MGM Resorts, Casino Analyst Highlights Winners And Losers From Q3

Earnings season has been extremely volatile for some of the top U.S. gaming stocks. Bank of America analyst Shaun Kelley recapped what investors need to know about the top U.S. casino, online sports betting and iGaming stocks.

Margin Pressures: Penn National Gaming, Inc PENN took the biggest beating this earnings season after the company reported an earnings miss and revenue numbers in-line with analyst expectations. Kelley said Hurricane Ida, the Delta variant of COVID-19 and rising digital investments pushed Penn’s margins lower by 4.2% compared to the second quarter. The sell-off in Penn stock was compounded by a negative Business Insider report about Barstool Sports founder Dave Portnoy.

Kelley said the post-earnings sell-off in Penn shares is overdone.

“Even in a worst-case scenario, we think PENN is still an attractive platform for media/strategic partners in the digital space,” he wrote in a note.

Draftkings Inc DKNG also had a difficult earnings season, missing consensus analyst revenue estimates. Kelley said the quarter marked DraftKing’s first true earnings miss as a public company, and costs will likely continue to ramp as DraftKings expands in New York and Canada.

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MGM Resorts International MGM was one of the big gaming winners this earnings season, reporting an earnings beat and Las Vegas revenue that was 20% above analyst estimates. Kelley said the company’s BetMGM app was a standout in the quarter, reporting 10% revenue growth quarter-over-quarter while revenue for other leading apps declined.

Caesars Entertainment Inc CZR also reported a big earnings miss and experienced margin pressures in its regional casino segment from Hurricane Ida and fires in Lake Tahoe. Kelley said investors can expect progress in Caesars’ iGaming business in coming quarters, but large investments will likely continue to weigh on profits in the fourth quarter.

Red Rock Resorts Inc RRR also reported a 4% quarter-over-quarter decline in margins that resulted in an earnings miss. Highlights of its earnings report include a $750 million initial estimate for its Durango development, an upsized $300 million share repurchase program and the rollout of a Red Rock digital wallet.

How To Play It: Bank of America has the following ratings and price targets for the stocks mentioned:

• Caesars: Buy rating, $135 target.
• Penn National: Buy rating, $90 target.
• DraftKings: Neutral rating, $60 target.
• MGM Resorts: Neutral rating, $55 target.
• Red Rock Resorts: Neutral rating, $90 target.

Benzinga’s Take: Overall, it was a difficult quarter for U.S. gaming companies, particularly from a profitability standpoint. However, the U.S. iGaming and online sports betting markets continue to put out impressive growth numbers, and the Las Vegas area appears to be recovering exceptionally well from the pandemic.

Photo: Erik McLean via Unsplash