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Why Casino Stocks Dropped Like a Rock on Thursday

By Travis Hoium – Updated Jun 11, 2020 at 5:06PM

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They look a little riskier today.

What happened 

Just as casinos across the U.S. begin to reopen, their stocks are plummeting. Shares of MGM Resorts International (MGM 3.00%) fell as much as 14.2% on Thursday, Wynn Resorts (WYNN 2.51%) dropped 10%, and Eldorado Resorts (ERI) fell 17.2% at its worst. The three stocks were down 13%, 9.3%, and 16.6%, respectively, at the close. 

They weren't the only casino stocks that were dropping; they were just worse off than rivals. Las Vegas Sands (LVS 2.88%) ended the day down 5.2%, Melco Resorts & Entertainment (MLCO 4.68%) was down 5.2%, and Caesars Entertainment (CZR) dropped 5.6% today. 

Craps table with dice and chips on it.

Image source: Getty Images.

So what 

U.S. markets were down around 6% today, and that's clearly hurting volatile casino stocks. But it's the underlying reasons for that decline that have to be a concern for investors. 

Another 1.54 million Americans applied for unemployment benefits in the week ended June 6, showing that the economy is still shedding lots of jobs. Some workers are going back to their jobs, but others are being laid off, and there will be a tension between those trends over the next few months. This comes after the Federal Reserve predicted that the economy will contract 6.5% in 2020 and end the year with a 9.3% unemployment rate, hardly the V-shaped recovery investors were hoping for.

For casinos themselves, a bigger concern is the trajectory of COVID-19 cases. The U.S. is seeing growth in cases in California, Arizona, Florida, and Texas, among other states, and that may be pointing to another wave of infections as businesses reopen. Casinos need to pack people into their resorts to make money, so if we see them shut again, it could be devastating to some operators. Ultimately, this could push their recovery back by months.

Now what 

We don't know how COVID-19 infections will trend, but if they get worse, it will be bad for U.S. casino companies. Even if resorts aren't shut down, customers may be hesitant to go to busy places like a casino and will keep their dollars home. Some operators have shored up their balance sheets, but the entire industry could be hurt if spending is down. 

Consumer discretionary stocks overall look a little riskier today given the potentially troubling trends for COVID-19. There were some early signs of an economic recovery as businesses reopened, and this could put that on hold. Expect more volatility as the market deciphers the industry's fortunes, but I would be cautious in expecting a return to normal anytime soon. 

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
$64.61 (2.51%) $1.58
MGM Resorts International Stock Quote
MGM Resorts International
$30.61 (3.00%) $0.89
Las Vegas Sands Stock Quote
Las Vegas Sands
$38.60 (2.88%) $1.08
Caesars Entertainment Corporation Stock Quote
Caesars Entertainment Corporation
Melco Resorts & Entertainment Limited Stock Quote
Melco Resorts & Entertainment Limited
$6.94 (4.68%) $0.31
Eldorado Resorts, Inc. Stock Quote
Eldorado Resorts, Inc.

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

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