Lowered gambling stock price predictions from Truist analysts
U.S. Gambling Sector Insights: A Casinos, iGaming, and Sports Betting Perspective
Rowdy Revenues and Savvy Strategies by our very own David McKee
In the realm of Wall Street, the current economic climate has proven to be a thorn in the side of many sectors. But, as Barry Jonas from Truist Securities has pointed out, the gaming industry is bucking the trend and standing tall amongst the chaos.
"Gaming is among the best positioned sub-sectors within a perhaps more mixed consumer sector," says Jonas in his April 23 investor note. Yet, he warns, a dose of caution is necessary when it comes to gambling stocks.
Jonas is not one to shy away from potential deals, especially those that promise stable cash flow. Consequently, he suggests investing in Real Estate Investment Trusts (REITs) Vici Properties and Gaming & Leisure Properties.
Among the list of gambling stocks, Jonas likes Churchill Downs and Monarch Casino Resorts for their top-notch assets. Meanwhile, digital-only giants DraftKings and Flutter Entertainment earned his seal of approval.
Despite his positive outlook, Jonas plans to keep Buy ratings on Caesars Entertainment and MGM Resorts International, as he believes investors are unjustifiably expecting the worst for the consumer. However, he notes that current market trends seem fine, and casino management remains optimistic, with room rates not showing significant signs of slowing down.
Looking back to the Great Recession of 2008, Jonas reminds us that a 35% decline in Las Vegas casino cash flows occurred at a time when international visitation was dwindling. Though, he emphasizes, Vegas is more exposed to international tourists than ever, especially considering the recent drop in Canadian and Mexican visitation. But, he proposes that American vacationers might step up to the plate and fill the void if they choose to scrap pricy European trips in favor of cheaper Vegas escapes.
Regional casinos, on the other hand, have taken a hit from a trifecta of economic factors, according to Jonas. These include consumer anxiety, adverse weather, and the loss of a leap year day. He declares that, despite this, the underlying trends for Monarch are fine, and he remains hopeful for the sector's resilience.
Plus, as consumers begin to prioritize staycations over destination travel, regional casinos may actually find themselves at an advantage. Other companies, such as Boyd Gaming, are also predicted to flourish in the face of the current economic landscape due to their solid balance sheets.
In the online gambling arena, Jonas acknowledges that the digital gambling sector hasn't been spared the recent market bloodbath. He attributes the decline to a challenging March Madness, an adverse NFL season for betting, and the potential threat of increasing state-level taxes and the rise of prediction markets.
However, Jonas believes that Flutter Entertainment and DraftKings hold promise, as he anticipates improvements in hold percentages and growth in the parlay mix. What's more, a recession might not harm online sports betting operators, as the majority of the wagering is done by high-end players, and there's a chance that additional legalization of iGaming could arise due to a need for more state revenue.
Lastly, Jonas points out that REITs have offered a safe haven for investors so far this year, despite the S&P index taking a nosedive. He predicts that deal activity will be limited until there's more clarity around the macroeconomy and interest rates. On the note of technology, Jonas expresses some concerns, but he's upbeat about the potential for mergers, acquisitions, and the growth of VR integration and hybrid gaming experiences.
In summary, Jonas's recent investor note offers a detailed analysis of the U.S. gaming sector, providing insights into current trends, company-specific considerations, and the strategic outlook for the industry. Investors should keep a close eye on Q2 2025 earnings for updated guidance, especially in regards to digital adoption rates and regional market dynamics.
- In the midst of economic turbulence, operators in the gambling sector, including Churchill Downs, Monarch Casino Resorts, DraftKings, and Flutter Entertainment, have been noted for their resilience, providing stable cash flow and viable investment opportunities.
- While the digital gambling sector has experienced a decline due to factors like a challenging March Madness, adverse NFL season, and potential state-level taxes, operators like Flutter Entertainment and DraftKings are still insulated due to their focus on high-end players and the possibility of additional iGaming legalization.
- Real Estate Investment Trusts (REITs) such as Vici Properties and Gaming & Leisure Properties have been suggested as attractive investments by analysts, offering a level of insulation for investors while the overall economic climate remains uncertain.
