If you’re looking for the best casino stocks to buy now, inflation hasn’t been good for many of them. The VanEck Gaming ETF (NYSEARCA:BJK) is down more than 23% in 2022, about 400 basis points worse than the S&P 500.
CNBC reported in mid-June that despite casino stocks getting hammered in the second quarter, American casinos generated $4.99 billion in revenue in April, the best April in the industry’s history. It was also the second-highest-grossing month on record behind March 2022.
However, evidence suggests that the good times might end – at least in the near term – as travelers figure out how to balance rising prices with their desire to travel.
In my list of best casino stocks to buy, I thought about including a casino property owner such as Vici Properties (NYSE:VICI), which owns 43 gaming facilities, including Caesars Palace Las Vegas, the MGM Grand, etc. Keep this one on your watchlist.
In the meantime, here are three casino operators worth considering at current prices.
|CZR||Caesars Entertainment, Inc.||$38.60|
|MCRI||Monarch Casino & Resort, Inc.||$60.19|
|CHDN||Churchill Downs Incorporated||$205.43|
Best Casino Stocks: Caesars Entertainment (CZR)
JPMorgan initiated coverage of Caesars Entertainment (NASDAQ:CZR) in June with an “overweight” rating and a target price of $59. Down nearly 59% in 2022, that’s a projected upside of 60% over the next 12 months.
“On the LV Strip (~50% of property level EBITDAR), growth should come from a group related ramp, which likely comprises 20% of room nights going forward, ~500 bps higher mix than the past. Furthermore, we see CZR as more than just a same store grower,” Seeking Alpha reported.
On July 1, Caesars announced the sale of its non-U.S. William Hill assets that it acquired in April 2021 as part of its $4 billion acquisition of William Hill PLC. Caesars got $730 million in net proceeds for the non-U.S. assets. It will pay down debt with the proceeds.
The William Hill acquisition expanded the company’s sports betting operations significantly. It now operates sports betting in 23 states, with 16 offering mobile sports betting and five online gaming.
While currently losing money, it could be a significant contributor to cash flow in the future. Trading at less than 1x sales, CZR is an excellent long-term play at current prices.
Monarch Casino & Resort (MCRI)
Barron’s recently discussed nine small-cap funds that could outperform the markets on the whole once stock prices eventually rebound. One of the funds was the Davenport Small Cap Focus Fund (MUTF:DSCPX). The actively managed fund likes to hold between 35 and 50 stocks.
The fund’s largest holding as of June 30 was Monarch Casino & Resort (NASDAQ:MCRI) at 6.4%. Barron’s reported that Davenport’s portfolio managers like that Monarch’s balance sheet is “pristine” and its casinos are based in the U.S.
To that first point, it finished the first quarter of 2022 with just $58.5 million in long-term debt and $33.1 million in cash and cash equivalents. That’s a net debt of $25.4 million, or just 2.3% of its $1.1 billion market capitalization.
On the second point, it operates two casinos: the Atlantis Casino Resort Spa in Reno, Nevada and the Monarch Black Hawk Casino in Black Hawk, Colorado. In Q1 2021, the two casinos generated $108.3 million in revenue, 44.5% higher than a year earlier. On the bottom line, it earned $18.1 million in the first quarter, 122.2% higher than Q1 2021.
MCRI is a small-cap gem.
Best Casino Stocks: Churchill Downs (CHDN)
Just days before the 2016 Kentucky Derby, I recommended investors buy Churchill Downs (NASDAQ:CHDN), owners of the track where the race is run every year. Despite being down 14 this year, CHDN is still up 160% in the last six years.
InvestorPlace’s Chris Markoch recently recommended CHDN as one of seven sports betting stocks to buy. Chris suggested that even though its dividend is small, the company has raised it for 11 consecutive years, making it an excellent long-term capital appreciation and income play.
Churchill Downs acquired Peninsula Pacific Entertainment LLC for $2.48 billion. The acquisition included the purchase of the Colonial Downs Racetrack in Virginia, the del Lago Resort & Casino in New York, the Hard Rock Hotel & Casino in Iowa and six Rosie’s Gaming Emporium locations. The company plans to grow these assets strategically.
Over every period, short or long, Churchill Downs has historically trounced the entire U.S. market. I expect it to continue for years, because you don’t get many better assets than Churchill Downs and the Kentucky Derby.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.