Best casino shares to buy in Q3

Fancy buying into the cash and the glamour of the casino sector? Many of the major casino chains and resorts in the US – and some in the UK – are listed companies. As well as casinos, many of them, including US companies like MGM, and Caesar’s Entertainment, own and run substantial hotels and resorts, where the casinos are situated.

Like most of the travel and leisure sector, the sector was hard hit by the Covid-19 pandemic, but things are slowly returning to normal as visitors return.

According to analysts at Grandview Research, the global gambling industry was worth $57.5 billion in 2021 and is forecast to grow to $127.3 billion by 2027, boosted by online gambling.

However, it isn’t all plane sailing for the industry. Covid lockdowns in Macau are affecting a number of casino operators and in the UK, as inflation and a looming recession bite, those who aren’t high rollers may begin to steer clear of the gambling tables. As such, it’s important to diversify your holdings and spread your risk.

Here are three casino stocks we think could be of interest:

• MGM Resorts sees visitors return

MGM Resorts is a powerhouse of the Las Vegas Strip, with 32 hotels and casinos in its portfolio, including the Bellagio, Excalibur and Luxor hotels. It has a market cap of $13.6 billion.

After a rough ride during the pandemic, the company posted a strong set of second-quarter results in August. MGM recorded its best ever adjusted property EBITDAR (earnings before interest, tax, depreciation, amortisation and restructuring costs) at its Las Vegas resorts and its best second-quarter adjusted property EBITDAR at its regional operations, thanks to strong demand from its leisure customers and convention clients.

Consolidated net sales rose by 44% to $3.3 billion from $2.3 billion in the same quarter in 2021, thanks to increased business at its Las Vegas resorts. The company also recently bought Cosmopolitan of Las Vegas from Blackstone, which boasts 3,000 rooms and an 110,000 square foot casino.

During the period MGM returned $1.1 billion to shareholders via a share buyback scheme. Its Macau operation is experiencing tough trading conditions due to Covid lockdowns. Net revenues in MGM China halved to $143 million (from $311 million last year). However, a recovery in this business could boost the shares. The company says its convention and event calendar going forward also looks “notably strong”.

MGM shares have had a strong run since the lows of the 2020 Covid lockdowns, but are down 8% this year and, at $34.73, are still trading below their five-year highs. Analysts at Citigroup have a price target of $58 on the shares.

• Wynn Resorts – betting on a Macau recovery

Wynn Resorts has had a tough second-quarter but could be a recovery play. Shares in the company founded by gambling entrepreneur Steve Wynn are down 28% this year to $63. The company, which owns Wynn Las Vegas, Encore Boston Harbor and resorts in Macau, including Wynn Macau and Wynn Palace, saw revenues fall 8% to $908.8 million for the second-quarter, from $990.1 million in the same period in 2021.

As such, Wynn made a loss of $130.1 million in the period, compared to a similar loss of $131.4 million in the second-quarter last year.

Its Las Vegas resorts are performing well as visitors return following the pandemic lockdowns, with revenues up $206 million and up $44.9 million at Encore Boston Harbor. Chief executive Craig Billings says the company’s focus on “five-star hospitality and new experiences” at its venues along with “very strong customer demand” drove a new all-time quarterly record for adjusted property EBITDA at Wynn Las Vegas and Encore Boston Harbor.

However, the company has been hit by ongoing Covid restrictions in the popular gambling island Macau. Sales at Wynn Palace fell $211.7 million and by $125.4 million at Wynn Macau compared to the second-quarter 2021. Nevertheless, Wynn is well funded and should benefit from the eventual return of visitors to Macau.

Analysts at a number of brokers recently cut their price targets on the stock following the second-quarter results, with analysts at Deutsche Bank Aktiengesellschaft reducing their target from $92.00 to $85.00. However, they retained their buy recommendation and plenty of potential upside remains.

• Rank Group - on the road to recovery

Meanwhile, UK-quoted Rank Group, which owns Grosvenor casinos and Mecca bingo halls, returned to profit for the full-year in August. The company posted pre-tax profits of £74 million for 2022, after making losses of £107.3 million last year. Underlying net gaming revenue increased by 108% in 2022 to £644 million but was still down 19% on 2019 as recovery from the pandemic continued.

At 85p, the shares are down 53% in the past year and trade on a price earnings ratio of just six. However, it isn’t all plane sailing now, unfortunately, as even the company’s high rollers are feeling the effect of the cost of living squeeze.

Trading has turned soft in the second half and the company is seeing lower footfall in its nine London casinos, despite the return of overseas tourists. What’s more, trading conditions are likely to remain difficult for the next year due to high inflation and the spike in UK energy prices. Rank says its energy bills alone are estimated to be £46 million this year. Nevertheless, with the shares trading at five-year lows, they are worth watching and could be a recovery play.