What happened 

Shares of casino stocks were pummeled on Monday as the U.S. response to the COVID-19 outbreak escalated. Shares lost as much as 20.1% for Las Vegas Sands (LVS 2.05%), 25.1% for MGM Resorts (MGM 0.35%), 19.4% at Wynn Resorts (WYNN 1.70%), 42.5% at Penn National (PENN 2.71%), 28.7% for Caesars Entertainment (CZR), and 24.8% for Eldorado Resorts (ERI).

At 1:45 p.m. EDT, shares of Las Vegas Sands were down 13%, MGM resorts was down 25.1%,  Wynn Resorts was down 19.1%, Penn National was down 42.2%, Caesars Entertainment was down 25.7%, and Eldorado Resorts was down 15.2%.

The market's crash is a big reason shares are down, but the casino industry is outpacing the market's drop because most companies have decided to shut down operations this week. It's not certainty when casinos will open again, and when they do it's uncertain how many people will be back in hotel rooms and at gambling tables. 

A blurry casino.

Image source: Getty Images.

So what

Whether forced by government or a decision by management, every company mentioned above has announced resort closures except Caesars Entertainment. Governors across the country are shutting down places that hold large gatherings, and casinos definitely fall into that category. 

Companies aren't saying when they expect to open again, but the shutdown could last weeks. And when they do open, it may take months for the conventions, business travelers, and vacationers to come back again. 

The real fear for casino companies is that debt taken out over the past few years will come back to bite them. Penn National acquired Pinnacle Entertainment, Tropicana Las Vegas, Barstool Sports, and other small properties in the last five years and took on debt to do so. Caesars and Eldorado are in the midst of a very highly leveraged combination, even after a huge buying spree by Eldorado over the last five years. If you're looking for why these three stocks are suffering more than others, it's because they're paying for those leveraged buyouts today. 

Now what

These are uncertain times for the casino industry and there's no doubt that the financial impact in the first and second quarters of 2020 will be massive. Remember that this shutdown comes only a month after Macau casinos were shut down for two weeks, so operators there are already going to be struggling. 

If you're ready to start buying the dip in casino stocks, I think you should look at companies that have rock-solid balance sheets like Las Vegas Sands. The company not only operates in some of the world's most attractive gambling markets of Macau and Singapore, it has $4.23 billion of cash on the balance sheet to just $12.5 billion of debt. That's enough to make it through months with zero revenue, which may be the case here in the U.S.