Gaming stocks experience a boost through 7% increases on NYSE and Nasdaq

The coronavirus pandemic has caused governors, regulators, and tribal governments to close nearly 1,000 commercial and Indian casinos in 43 states beginning in the middle of March in an effort to slow the viral spread.
The shutdowns have caused casino operators and gaming equipment providers to see their balance sheets challenged and their healthy 2020 revenue projections tossed aside.

On Sunday, Jefferies gaming analyst David Katz told investors there is a large amount of uncertainty in trying to forecast gaming company results in the COVID-19 environment. The Dow closed up Monday more than 1,600 points, or 7.6%, and the Nasdaq jumped 540 points, or 7.3%.

Of the major casino operators, MGM Resorts International shares were up 22.02% to close at $12.91, Las Vegas Sands increased 7.33% to close at $40.70, and Wynn Resort closed at $56.73, up 16.97%.

All three companies have casino operations in Macau, which saw slowdowns when the pandemic hit China in January and the government forced casinos to close for 15 days in February. Gaming revenues fell 87.8% in February and 79.9% in March.

Already, analysts said April gaming revenues are down nearly 90%.
“It’s difficult to expect gross gaming revenue to improve until Mainland China travel restrictions are eased,” Hong Kong-based Macquarie Securities gaming analyst Edward Engel said Monday.

Gaming equipment manufacturers had a sold day Monday. International Game Technology shares rose 5.66% to $5.23, Scientific Games was up 27.6% to $7.49, AGS rose 17.36% to $1.69, and Everi Holdings was up 37.99% to $3.16.

Katz said in a research note that one assumption is that U.S. casino markets will remain closed through the end of May. However, any reopening will still include social distancing, such as space restrictions that limit the number of gaming positions by 33%, resulting in a 10% decline in win-per-unit-per-day.

“We note that it is reasonable to expect that reopening is uneven by state and property, which would warrant adjustments which are unknowable at present,” Katz said. “We further assume a more normalized but more modest operating level beginning in the fourth quarter of 2020 and through 2021.”

Katz looked at seven regional casino operators – Eldorado Resorts, Caesars Entertainment, Churchill Down, Monarch Casinos, Golden Entertainment, Boyd Gaming, and Penn National Gaming – who all saw revenues and cash flow totals end last month and are expected to be at zero during April.

“Our discussions with various resources suggest that, based on current circumstances, all of the companies should survive, but the more highly levered names could be forced to seek permanent solutions to current, temporary challenges,” Katz said.

He added the $17.3 billion merger between Eldorado and Caesars was “highly likely to close” due to the considerable upside. Eldorado shares increased 38.09% Monday to $14.03. Caesars was up 11.62% to close at $7.01.
Two companies, Boyd Gaming and Penn National, “have elevated leverage.”
Boyd, Katz said, has “prudently conservative” management and “maintains optionality” from its real estate ownership. Penn’s regional gaming properties, he said, “should prove stable.”

Boyd was up 10.52% to close at $12.40 and Penn rose 12.9% to close at $11.09. Golden Entertainment shares increased 18.63% to close at $6.24 and Red Rock Resorts increased 25.2% to close at $9.34.