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Why Eldorado Resorts Shares Plunged 11.8% on Tuesday

By Travis Hoium - Feb 26, 2020 at 9:52AM

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Casinos aren't being hit by the coronavirus yet, but that may not last forever.

What happened 

Shares of casino company Eldorado Resorts (ERI) fell as much as 11.8% in trading Tuesday as coronavirus concerns hit the casino industry. Shares ended the day down 11.7% and are now down 18.3% for the week. 

So what

The general market concern is that the coronavirus will hurt travel and hospitality demand, and that's led to the sell-off. We're starting to see data from Asia that demand for hotel rooms is down significantly, but that hasn't hit the U.S. yet. If it does, casinos could feel an impact quickly. 

Roulette table with the ball on 17.

Image source: Getty Images.

For what it's worth, Caesars Entertainment (NASDAQ: CZR) -- in the process of being acquired by Eldorado -- just reported earnings and said there hasn't yet been an impact on hotel or casino demand. That's good news, and if the disease doesn't have a big effect in the U.S., this could be a short-term dip in the casino stock

Now what

As of Wednesday, there doesn't appear to be a big effect on U.S. casino operators, and Eldorado and Caesars specifically. But that could change if the scare gets worse. I wouldn't panic-sell Eldorado shares today, but keep an eye on demand trends over the next few months. It could be a rocky road for the company just as it's trying to acquire Caesars Entertainment, a risky move even without fears of an epidemic. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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