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 last year hit a number of casino operators and in the UK, as inflation and a looming recession bite, those who aren’t high rollers may 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 $15 billion.

After difficult time during the pandemic, the company posted a strong set of first-quarter results, with record adjusted property EBITDAR (earnings before interest, tax, depreciation, amortisation and rent costs) for its Las Vegas Strip resorts up 41% year-on-year. This was its seventh consecutive set of record EBITDAR figures for the resorts.

Meanwhile, adjusted property EBITDAR is up at its Chinese business, with figures for MGM China making an 88% recovery against the same period in the first-quarter of 2019. Net revenues at MGM China also rose 130% year-on-year as the area reopened for business. MGM also repurchased $487 million shares during the period and plans to make further share buybacks.

“MGM Resorts is executing across all of its geographies and channels with record first quarter Las Vegas Strip Adjusted Property EBITDAR, consistently strong Regional Operations profit, MGM China's swift return to profitability, and BetMGM’s anticipated positive earnings later this year,” said Bill Hornbuckle, chief executive officer and president of MGM Resorts.

“Beyond our continued exceptional results, our future growth and expansion plans are promising. In April, we achieved the landmark approval of MGM’s development plan in Osaka, Japan. The application process in New York is progressing and our global digital expansion plans remain a major focus as we continue to grow LeoVegas and the MGM digital brand worldwide.”

Total net revenues for MGM as a whole rose 36% to $3.9 billion, while operating income was $731 million compared to $106 million in first-quarter last year. This was due to a $398 million gain on the sale of Gold Strike Tunica and the increase in net revenues.

The shares are up 20% this year to $41.33 but look likely to continue to benefit from the return of customers to MGM resorts, both in China and the US. Analysts at broker JP Morgan Chase think the shares could reach $60.

Wynn Resorts – making a recovery

Wynn Resorts, founded by gambling entrepreneur Steve Wynn, is on the road to recovery following the Covid lockdowns, which hit its Macau and other Chinese operations.

The company, which owns Wynn Las Vegas, Encore Boston Harbor and resorts in Macau, including Wynn Macau and Wynn Palace, underlined its recovery in Macau by reinstating its dividend programme at its first-quarter results posted in May. The casino and hotel operator said the return to the payment of quarterly dividends demonstrated its strong financial results, “robust liquidity position” and “commitment to returning capital to shareholders”.

Operating revenues rose by $470.3 million to $1.4 billion in the period, compared to the first-quarter of 2022. Wynn Resorts came back into the black, posting $12.3 million in net income, compared to a $183.3 million loss in the same period last year. Adjusted property EBITDAR was $429.7 million for the first-quarter of 2023, compared to $177.6 million for the first-quarter of 2022.

"For the first time in over three years, each of our resorts is generating strong financial results, which is once again a testament to our team's relentless focus on delivering five-star hospitality and experiences to our guests," said Craig Billings, CEO of Wynn Resorts. "In the U.S., Wynn Las Vegas and Encore Boston Harbor are firing on all cylinders, generating a new all-time record for Adjusted Property EBITDAR at our combined North American properties during the quarter.”

Meanwhile, Billings says that at its Macau resorts, “after several challenging years” the company is now seeing a “meaningful return of visitation and demand” in its mass gaming and retail divisions, leaving it well-placed for success there.

Wynn shares are up 54% this year to $102.21 but are likely to continue to see an uplift in revenues due to the return of high rollers to its casinos. Analysts at broker Deutsche Bank think the shares could reach $140.

Rank Group - recovery on its way?

Meanwhile, things could be looking up for previously beleaguered UK-based casino and bingo hall operator Rank Group. In its recent trading statement, the company, which runs Mecca Bingo and the Grosvenor casinos in London’s West End, said that thanks to improved trading in the third-quarter, profits for the full-year should be better than expected.

Rank said that it now anticipates that underlying like-for-like operating profit for the full year to 30 June 2023 should be “at the upper end or slightly ahead” of previous guidance of between £10million and £20million.

"We are pleased that the momentum we saw at the start of the second half of our financial year has continued with positive NGR (net gaming revenue) growth across all our businesses,” said chief executive John O’Reilly.

“Despite the challenging macroeconomic environment, the investments we have been making to improve the customer experience in our venues have helped drive the improved performance across both Grosvenor and Mecca. The digital business is benefitting from the build out of enhancements to the customer experience on our proprietary technology and we have a strong pipeline of developments to continue to grow market share into the future."

However, the company does point out that the fourth-quarter is generally a quiet period for its London casinos.

Rank shares are down 7% this year to 100p but, given the improved performance, may be worth watching.

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