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Why Casino Stocks Jumped Double Digits on Wednesday

By Travis Hoium – Jun 3, 2020 at 3:20PM

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Casinos are reopening, and that has investors excited today.

What happened 

Shares of casino stocks jumped dramatically on Wednesday as casinos announced opening plans and the market moved higher overall. Shares of Wynn Resorts (WYNN -2.05%) jumped as much as 11.4%, Eldorado Resorts (ERI) rose 11.4%, and Red Rock Resorts (RRR -1.58%) popped 10.7% today. Shares moved higher throughout the day with these three stocks up 10.8%, 9.7%, and 9.3%, respectively, at 3:20 p.m. EDT. 

Part of the move was certainly driven by the market climbing overall and volatile casino stocks magnifying those gains. As of this writing, the Dow Jones Industrial Average is up 2% and the S&P 500 is up 1.4%, so gains are widespread across the market. 

Las Vegas sign with the Strip in the background at dusk.

Image source: Getty Images.

So what

Tomorrow, Las Vegas casinos are going to start opening and investors are hoping that's a sign of returning profits, as well. Wynn Las Vegas will open along with most of Red Rock's resorts around Las Vegas. Eldorado has already opened properties in Missouri, Iowa, Mississippi, and Louisiana.

Investors have been waiting for casinos to reopen and are anticipating demand to pick back up if stock prices are any indication. However, there may be a reason for caution. 

Macau, which can be seen as something of a bellwether for Las Vegas because it's a month or two ahead in dealing with COVID-19, recently announced that gambling revenue in May fell 93.2% versus a year ago, to $221 million. Some of that can be blamed on restrictions and unrest in mainland China and Hong Kong, but there's no real sign of a V-shaped recovery in demand in the region. The worst thing that could happen for casinos is reopening and no guests showing up, which may be the case for the time being.

Now what

The truth is that we don't know how consumer discretionary stocks like casino stocks are going to hold up in the next few months as their underlying businesses return to operation. Guests will likely take some time to return to anything near normal travel and gambling patterns, which could suppress revenue for a year or more. 

While the short-term news that casinos are opening seems like good news, it may not be that at all. As casinos open, we're going to see operating expenses rise as the staff is rehired and resorts return to at least a minimal level of operation. But if customers don't come back in droves, the additional cost could drive losses over the next quarter or two.

Be aware that the numbers may not look good for the next few months or quarters, especially given what we've seen in Macau. Las Vegas may not look any better a few months from now. 

Travis Hoium owns shares of Wynn Resorts. 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

Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
WYNN
$63.03 (-2.05%) $-1.32
Eldorado Resorts, Inc. Stock Quote
Eldorado Resorts, Inc.
ERI
Red Rock Resorts, Inc. Stock Quote
Red Rock Resorts, Inc.
RRR
$34.26 (-1.58%) $0.55

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

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