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Why Eldorado Resorts Stock Jumped as Much as 13% on June 4

By Reuben Gregg Brewer – Jun 4, 2020 at 2:38PM

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Investors like the news that Las Vegas is reopen for business, but Eldorado isn't exactly playing it the way you might think.

What happened

Shares of casino operator Eldorado Resorts (ERI) were up by roughly 13% at 2 p.m. EDT on Wall Street. It was industrywide news that led to investors' upbeat mood here. However, there is an important company-specific difference with regard to Eldorado that you need to understand. 

So what

Casinos are most definitely not an essential business, since nobody needs to gamble. So, when the United States was attempting to contain the spread of COVID-19, gaming establishments like Eldorado found themselves completely shut down. The coronavirus can spread easily in group settings, so that decision made a great deal of sense. Now that COVID-19 seems to be better contained, non-essential businesses like gambling are being allowed to reopen, with limits and due precautions. Today was the big day for Las Vegas, and investors rightly got excited, pushing the shares of companies like MGM Resorts, Caesars Entertainment, and Wynn Resorts higher. Only Eldorado's gains were much larger than the mid-to-high single-digit gains these stocks witnessed. 

Someone's hand lifting up cards on a poker table filled with chips.

Image source: Getty Images

The reason is a bit nuanced, but pretty important right now. MGM, Caesars, and Wynn own big splashy casinos on the Las Vegas strip. They are destinations for people who travel in from out of town. Eldorado is more of a "locals play," with smaller, less fancy locations that tend to cater to people who live in and around the city. Air travel remains depressed because of concerns around COVID-19, so even though Las Vegas is again open for business, it's likely to take a long time before the big strip casinos are anywhere near their previous attendance levels.

And that's on top of the occupancy restrictions they will be under because of COVID-19. With a more local audience, however, investors seem to think that Eldorado's business will pick up more briskly. Indeed, attendance has been strong at other regional casinos in other areas of the country as they have reopened, so that's a pretty reasonable assessment. 

Now what

For investors looking to get into the casino space, it makes sense to do a deep dive at Eldorado. It doesn't have the name cache of some of its peers, but the more local nature of its business looks likely to give it a leg up today. That said, long-term investors shouldn't get too caught up in the reopening excitement. The efforts to slow the spread of the coronavirus will probably end up pushing the U.S. economy into a recession, which would not be good for the casino business. It is way too soon to suggest that Eldorado, or any of its peers, is out of the woods here.

Reuben Gregg Brewer 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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