Last week was high times for shares of U.S. gambling stocks; the boost was driven by an analyst upgrade and some great news out of Atlantic City.
Shares of Penn National (NASDAQ:PENN) and Caesars Entertainment (NASDAQ:CZR) jumped by as much as 10.4% by mid-day. Those gambling stocks were up 9.1% and 7.5% respectively.
While gambling stocks with physical casinos in the U.S. were up, so were online gambling stocks. For example, shares of DraftKings (NASDAQ:DKNG), the online sportsbook, rose by as much as 5.7% and settled at 4.3% up from the previous day.
What we cover
Gambling Stocks are Hot
To begin with, J.P. Morgan analyst Daniel Politzer resumed coverage of Caesars Entertainment following a restricted period. At that time, Caesars had a $50 price target and an overweight rating. Politzer thinks the potential upside for a gambling recovery in the US is worth the risk. Furthermore, the surge in online gambling could simply add fuel to the fire.
Stephen Grambling at Goldman Sachs gave shares of Penn National a $60 price target and a buy rating based on the rebound of gambling across the country, and the growth of online sports betting. In fact, Penn National plans to use its 36% share of Barstool Sports to drive sports betting growth. In the long term, sports betting could become a big part of Penn’s business.
The news that sports betting in New Jersey increased 91% to $315.1 million from June through July drove shares of DraftKings stock is up. Revenue for New Jersey sportsbooks came in at $29.6 million, up more than 65% from a year ago. This bodes well for sports gambling stock, as August signals more major league sporting events to bet on.
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Casinos Continue to Make a Comeback
Land-based casinos have been in a state of suspended animation for months, due to the COVID-19 shutdowns. Fortunately, there are signs of new life. For example, gambling revenue per slot machine and table in Las Vegas were surprisingly robust at a few of the casinos in June, despite the COVID-19 restrictions on gaming floor capacity.
Despite the lingering restrictions, Atlantic City has welcomed back a steady stream of visitors since the casinos reopened on the 4th of July weekend. While the hotels and casinos are still operating at a reduced capacity, they are back in business.
While gambling revenue will likely be double-digit down in the third quarter, the good news is, gamblers are rushing back to play in their old haunts. Places like Las Vegas and Atlantic City can’t be kept down as long as there are ardent gamblers within driving distance. As long as the COVID-19 restrictions continue to be lifted, Atlantic City and Las Vegas should continue to rebound.
Online Gambling Stocks Could Be a Good Bet
The online gambling business is getting ready to expand exponentially. So far, more than a dozen states have legalized online gambling and sports betting in one form or another. During the lockdown, millions of people were stuck at home, without a job, and online gaming was a way to get some entertainment, and a possible win.
While today, the upside for sports gambling stocks are small, as demonstrated by a mere $29.6 million in revenue for sportsbooks in New Jersey last month. However, if the sports betting industry continues to grow in scale and the number of states legalizing sports betting increases, the upside could be huge. Investors may want to watch those gambling stocks with both an online and brick-and-mortar presence.
While buying gambling stocks on a single state’s financial data or an analyst upgrade isn’t recommended, it is the sort of information investors can use to formulate their long term investment thesis. Online gambling, in particular, could prove to be huge for gambling companies, and the ones that move online first could be good growth stocks in the long term.
