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Stock Markets Defy COVID-19; Red Rock, Penn National Lead Regional Casinos Higher on Vaccine Hopes

By Dan Caplinger – Jul 15, 2020 at 11:05AM

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Some companies really need things to go back to normal.

The stock market moved higher on Wednesday, buoyed by good news on the coronavirus front. Although case counts of COVID-19 are still on the rise, a favorable report from biotech company Moderna (MRNA 4.16%) made investors more confident that the final resolution to the pandemic might well be a viable vaccine in the near future. Even with Moderna making it clear that there's a long road ahead, market participants didn't wait to bid up share prices. The Dow Jones Industrial Average (^DJI 1.26%), S&P 500 (^GSPC 1.44%), and Nasdaq Composite saw nice rises on the day.

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Data source: Yahoo! Finance.

In the U.S., various states have moved forward at different paces to try to reopen their economies. That's been tough for many businesses that rely on big crowds for their success. Among them, regional casino companies found themselves on the brink of financial collapse during the worst of the pandemic, as many of those businesses have far weaker balance sheets and fewer financial resources than big-name premier casino resort operators in gambling meccas like Macao and the Las Vegas Strip. For companies like Penn National Gaming (PENN 2.59%), Red Rock Resorts (RRR 2.34%), and Boyd Gaming (BYD 2.72%), a vaccine might well be the only solution that allows them to maximize their full profit potential.

Roulette wheel with bright lights in the background.

Image source: Getty Images.

A big bet pays off

You only need to look at the way regional casino stocks performed today to understand what's behind all the excitement:

  • Red Rock Resorts, which operates an off-Strip casino in the Las Vegas suburb of Summerlin South, as well as several other small casinos in the greater metropolitan area, jumped 19% on the day.
  • Penn National weighed in with an 18% advance on hopes that its vast network of casinos across the Midwest, Northeast, South, and Western U.S. could all benefit from a COVID-19 solution.
  • Boyd Gaming, with its presence in Downtown Las Vegas, as well as the Midwest and South, posted a 17% rise in its stock price.

To be clear, bigger names got in on the fun too, but their gains weren't as sharp. MGM Resorts (MGM 2.52%), which does have a regional presence as well as having some high-profile properties in larger global gambling areas, saw its stock climb 13%. For the larger players in the industry, though, only single-digit percentage gains were available to shareholders.

Why casinos need a vaccine more than ever

If you've ever been to a casino, you can understand the huge impact a pandemic can have on its business model. Casinos congregate huge numbers of people together in small spaces, with every inch of real estate at a premium. Social distancing is a direct attack on profitability.

It's been possible for casinos to implement measures to protect health. Plexiglass barriers and greater use of electronic gambling options have improved things somewhat. But they've also killed some of the excitement of casino gambling -- and it's that excitement that made many gamblers willing to accept odds that guarantee huge profits for Boyd, Penn National, Red Rock, and their peers across the world.

As long as the coronavirus pandemic goes on, stock market investors can expect huge volatility for the companies that have suffered the most damage from the disease. What's amazing is that Penn National is nearly back to its all-time highs. That's a sign that casino shareholders might be getting ahead of themselves in their optimism. But it also shows how important even the hope for a vaccine is for the industry's survival.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Boyd Gaming and recommends the following options: short September 2020 $26 calls on Boyd Gaming. The Motley Fool has a disclosure policy.

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