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Why Shares of Red Rock Resorts, Park Hotels, and Six Flags All Jumped Tuesday Morning

By Reuben Gregg Brewer – Updated May 26, 2020 at 12:36PM

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Although all in different businesses, these companies and their consumer-discretionary peers share one thing in common, other than big price gains.

What happened

Shares of casino operator Red Rock Resorts (RRR 2.25%) jumped as much as 21% at the open of trading on Tuesday. Casino peers Eldorado Resorts (ERI) and Penn National Gaming (PENN 1.30%) jumped as well, though not quite as much. All three fell back from their respective peaks by 10:30 a.m. EDT today, with Red Rock and Eldorado up in the mid single digits. Penn fell to a low-single-digit gain. 

Fingers flipping a die that says short and long with dice spelling term next to it

Image source: Getty Images.

Amusement park operator Six Flags Entertainment (SIX 0.89%), meanwhile, saw its stock advance nearly 12%. Peers Cedar Fair (FUN 1.33%) and SeaWorld Entertainment (SEAS -0.25%) saw their stocks jump as well, though not quite as much. Like the casino operators, these companies quickly pulled back from the gains, but all three were up between 5% and 10% at 10:30 a.m. EDT on Tuesday. 

And hotel operator Pebblebrook Hotel Trust (PEB -0.70%) rose a quick 13% or so, followed closely behind by Park Hotels & Resorts (PK -1.66%) at about 12%. Peer DiamondRock Hospitality Trust (DRH -1.30%) didn't rise quite as much, but also saw a quick advance out of the gate. By 10:30 a.m., DiamondRock had extended its gains for the day to 11% while the other two were holding on to high-single-digit gains.

So what

Investors were generally upbeat at the start of trading today, following the long Memorial Day weekend. Although the news on COVID-19 was decidedly mixed, as usual, Wall Street chose to focus on the good side of things on Tuesday. That included more upbeat news on a potential vaccine, the efficacy of a treatment, and the impact of the coronavirus ebbing in some of the hardest-hit regions of the United States. The big takeaway is that it looks like there may be a light at the end of the tunnel.   

If consumers can eventually get back to something close to a pre-COVID-19 normal, casinos, amusement parks, and hotels will all benefit immensely. In fact, early indications in the casino space are pretty positive, with pent-up demand leading to material attendance levels on gaming floors, in the attached hotels, and in the casino restaurants in southern Mississippi over the long weekend.

That's not to suggest the casinos are full to capacity; regulations to ensure health and safety have led to operating restrictions and capacity constraints. So things are good, though not back to normal. But the real story is that there's still demand out there despite the coronavirus.   

Hotels likely face a longer road to recovery, being that they are often filled with business travelers and vacationers. But if casinos are seeing demand start to return, it's highly likely that travel will pick up at some point in the future as well. With hotel real estate investment trust (REIT) Park down by 60% so far in 2020, there's a lot of recovery room in the stock. Pebblebrook and DiamondRock are down in the 40% to 50% range, so plenty of rebound potential there, too.

That said, the second quarter, which has felt the brunt of the COVID-19 shutdowns, is likely to be very ugly for these REITs. And it's probably best for investors to go in anticipating a slower business recovery here, since the REITs lack the attraction of on-site casinos. 

PEB Chart

PEB data by YCharts.

Six Flags, Cedar Fair, and SeaWorld are all about the attractions. The key Florida market is starting to reopen, with shopping destinations at industry giants Disney and Comcast's Universal now open to visitors. The next step will be the amusement parks themselves, which are starting to work through the intricacies of reopening while protecting customers and employees from illness. If there's a vaccine and/or medicine to help reduce the impact of the virus, consumers might be more willing to venture into a park. However, as the pent-up demand on the casino side suggests, there might be more people willing to go, even in the current environment, than many had originally expected. 

Now what

Emotions are high today, and news can quickly change the direction of a stock or sector. But it's often hard to tell which news is going to be seen as important and which will be ignored, if only temporarily.

The COVID-19 crisis is far from over, and one day of sizable stock-price gains isn't enough to turn casinos, hotels, or amusement parks into sudden buys. Although there are positive signs on the horizon, there are still negative currents buffeting these businesses. Most long-term investors are probably still best off on the sidelines for now.

Reuben Gregg Brewer owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Cedar Fair, Comcast, and Pebblebrook Hotel Trust and recommends the following options: long January 2021 $60 calls on Walt Disney and short July 2020 $115 calls on Walt Disney. The Motley Fool has a disclosure policy.

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