In 2020, gaming, sports betting and casino stocks faced a bumpy and sometimes wild ride, due to the COVID-19 shutdowns, lingering restrictions, and the cancellation of major league sports. Recently, Shaun Kelley, an analyst for Bank of America, shared his insights on the outlook for the gambling sector in 2021, “From shorts to sports.”
Let’s take a look at some of the highlights from the report.
What we cover
Sports Betting in 2021
The key factor to keep in mind for sports betting in 2021 is that more states have approved sports betting, adding to the addressable market. Furthermore, additional states are lined up to legalize it, increasing the market size even further.
According to Kelley, sports betting, fantasy sports and iGaming could grow by more than 70% in 2021.
However, the sports calendar could once again become a major concern. The delay of sports events into the second half of 2020 could cause some difficult compromises in mature sports betting markets like New Jersey, Indiana, and Pennsylvania.
States like Virginia and Michigan are expected to debut sports betting sometime in early 2021. Also, states like New York, Massachusetts, Ohio, Maine, Connecticut, and Georgia are poised for possible legalization.
Kelley predicts that by the end of 2021, 27 states will have legal sports betting, encompassing around half of the U.S. population. The years 2021 and 2022 see 24% of the adult population within the sports betting market compared to only 10% in 2018 and 23% in 2019 and 2020.
Among the top-performing sports betting stocks in 2020, DraftKings Inc. (NASDAQ: DKNG) dominated. Kelley rates DraftKings as neutral due to its cost structure and high marketing costs.
Kelley gave Churchill Downs (NASDAQ: CHDN) a buy rating. The BoA analyst highlights Churchill Downs as a robust Kentucky Derby brand, as well as its accelerating growth profile and its growing online platform, TwinSpires.
Finally, Kelley gave Penn National Gaming (NASDAQ:)PENN a price target of $104.
Casinos and Gaming
The casino sector could be divided into the first and last halves of the year, as Kelley predicts recovery of casino resorts, with the second half of the year recovering much more quickly. Kelley thinks that widespread vaccine distribution could encourage tourism and convention business to spring back in the second half of 2021.
According to Kelley, Las Vegas revenue per available room is expected to increase 25% to 30% year-over-year. Kelley’s estimate predicts that revenue per available room will be 5% to 10% below 2019. But comparables could be easily beat in 2021 due to pent-up consumer demand.
Kelley but raised the price target for Caesars Entertainment (NASDAQ: CZR) from $65 to $75, crediting a faster than expected recovery, but remains neutral.
The Future for Macau
Kelley says that Macau is one of the hardest gaming markets to predict. Communist Chinese controlled Macau has massive potential, but also faces massive uncertainty.
Kelley did raise his price targets for two familiar casino names with properties in Macau. Wynn Resorts Ltd. (NASDAQ: WYNN) received a generous price target upgrade, jumping from $95 to $122.
Kelley also gave Las Vegas Sands Corp. (NYSE: LVS) a more modest price target upgrade, of $65 from $61.
Mobile Gaming
5G networks will provide the thrust to making mobile gaming and sports betting more accessible. It’s estimated that more than 2.2 billion people have used their mobile devices to play games over the last few years. With continuing improvements in technology, mobile devices will be comparable to a desktop computer. This not only means more mobile gambling, but it will also positively impact the companies associated with the 5G network. The growing 5G networks should set in motion more companies in the online gaming space. This, in turn, will mean more and better games, especially live casino games.
Of course, before investing, do your own research. While the analyst’s forecasts for 2021 look positive, things can change on a dime. The year 2020 can testify to that.
