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Why Casino Stocks Bounced Back Today

By Travis Hoium - Jun 12, 2020 at 4:59PM

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The market changed its mind about Thursday's sell-off.

What happened 

After cratering on Thursday, many casino stocks bounced back on Friday. MGM Resorts (MGM 1.98%) was as much as 10.3% higher before closing up 7.5% for the day. Eldorado Resorts' (ERI) shares gained 13% at their peak and closed up 10.6%. Shares of Penn National (PENN 5.90%) climbed 9.8% and closed up 6.4% for the day. The gains easily outpaced the stock market gains of 1.3% for the S&P 500 and 1.9% for the Dow Jones Industrial Average

So what 

Thursday's drop was in large part due to the fact that COVID-19 cases have begun rising as some states have started to reopen, and the market feared that would lead to a slower-than-expected economic recovery and potentially the shutdown of some states again. For casinos, if people fear for their health in places with a lot of people, it would be logical to see traffic down for the foreseeable future. 

Las Vegas sign with casinos in the background at dusk.

Image source: Getty Images.

Today, governors have pushed back on the idea of going back to shutdowns. After three months of asking people to stay home, both residents and governments are eager to get back out in the world. 

Early traffic on the Las Vegas Strip has reportedly been slow, but resorts have only been open for a little over a week now. The other data point to look at is Macao, where gambling revenue was down 93.2% in May, despite many parts of Asia already reopening. This could be a long, slow journey for casino operators.

Now what 

Investors are going to have to brace for a rocky road for casino stocks over the next few months. Macao's gambling volume is still anemic and doesn't look like it's going to recover quickly. 

The good news is that most casino operators have been shoring up their balance sheets in anticipation of a slow recovery. Penn National sold Tropicana for five months of rent credits, MGM raised $750 million, and Eldorado says it can go about a year without revenue. These were early moves that could save these operators months from now. 

We're likely to be heading into a volatile period for casino stocks as day to day, it looks like the economy and COVID-19 are getting either better or worse. Right now, the signals are mixed and that's why the industry is so volatile. I'm holding on to my casino stocks because long term I think the industry will recover, but it'll probably be a wild ride in the meantime. 

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

MGM Resorts International Stock Quote
MGM Resorts International
MGM
$35.60 (1.98%) $0.69
Penn National Gaming, Inc. Stock Quote
Penn National Gaming, Inc.
PENN
$37.70 (5.90%) $2.10
Eldorado Resorts, Inc. Stock Quote
Eldorado Resorts, Inc.
ERI

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

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