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Why Casino Supplier Stocks Popped by Double Digits on Wednesday

By Travis Hoium - Updated May 20, 2020 at 5:40PM

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Casinos are about to open their doors in the U.S.

What happened 

Shares of suppliers to the casino industry jumped by double digits on Wall Street today as the industry inches toward reopening. Shares of Everi Holdings (EVRI 2.30%) were up as much as 17.4%, IGT (IGT 2.96%) was up 11.3% this afternoon, and Scientific Games (LNW 3.37%) was up 9.9% at its high. Shares of the three companies closed higher by 7.3%, 12.9%, and 8%, respectively. 

The jump in shares mirrored a move higher for casino operators today, so there's an effect of a rising tide lifting all gambling stocks. 

So what

The only real significant news today was from IGT, which announced it will provide its PlaySports platform in retail and mobile settings for the Wild Card Saloon and Sasquatch casinos in Black Hawk, Colorado. These are another step into the online gambling business, but with relatively small local markets aren't going to be a game-changer. 

Roulette wheel with a black background.

Image source: Getty Images.

What could change the industry is casinos actually reopening. Mississippi casinos announced on Wednesday that they're planning to open as early as Thursday, and Las Vegas is looking at a June opening of some of its properties. The slow opening of casinos is going to be an incremental benefit for those companies that supply casinos. So it makes sense that such suppliers are up today. 

Now what

We're starting to get an understanding of when casinos will open, but still have no idea what that opening will look like. Demand is likely to be weak for months and may not fully return until a COVID-19 vaccine is in widespread circulation. What I would worry most about is the corporate and convention business that drives weekday demand not coming back until 2021 or later. That'll put casinos in a tough position, especially in Las Vegas. 

The fear for suppliers should be that casinos will clamp down spending if demand is weak and put off upgrades in items like table games, slot machines, and back-end systems. That's where these companies make their money, and they may not be growth stocks for the next few years if the industry is weak overall. 

The market is reacting to short-term news today, but over the long term, this industry has a lot of questions ahead. And for suppliers, I think there's an even bigger risk of a delay in demand returning than there is for casino operators themselves because they're downstream of the casino. That's why I wouldn't buy today's pop, even if the news about casinos opening is good overall. 

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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Stocks Mentioned

International Game Technology Stock Quote
International Game Technology
IGT
$22.64 (2.96%) $0.65
Everi Holdings Inc. Stock Quote
Everi Holdings Inc.
EVRI
$20.88 (2.30%) $0.47
Light & Wonder, Inc. Stock Quote
Light & Wonder, Inc.
LNW
$57.96 (3.37%) $1.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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