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Why Shares of Penn National Gaming, Boyd Gaming, and Red Rock Resorts Gained 9% or More in Early Trading Today

By Reuben Gregg Brewer - Updated Jul 15, 2020 at 11:39AM

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Casino operators started off the day strong. But don't get too caught up in the excitement: We've been here before.

What happened

Shares of casino operator Penn National Gaming (PENN -2.82%) rocketed nearly 16% in the first half-hour of trading on Wednesday. It was followed by a nearly 12% gain in Boyd Gaming (BYD -2.31%), an 11% jump at Red Rock Resorts (RRR -3.03%), and a roughly 9% gain at MGM Resorts International (MGM -2.09%). Clearly, investors were upbeat about gambling stocks as trading got underway.

So what

The big news wasn't directly related to casinos; it was of a medical variety. Moderna, an early leader in developing a coronavirus vaccine, reported positive results in a phase 2 vaccine trial. All of the 45 subjects tested reportedly created antibodies, and there was more than enough evidence to suggest that a larger trial was in order. That trial, with about 30,000 participants, is expected to start in late July. Broadly speaking, investors got excited by the idea that a COVID-19 vaccine might be closer than it seems. Casino stocks went along for the ride.   

A gambling table with dice and chips on it

Image source: Getty Images

There's a good reason for this: Casinos are built to bring lots of people together in one place. And seeing older players at the slot machines and gambling tables is pretty normal. So casinos are creating the conditions in which the most vulnerable can catch the coronavirus.

It's one of the reasons casinos were shut down when nonessential businesses were closed in an effort to slow the spread of COVID-19. There were fairly strict rules on reopening as well. If a vaccine ends up resolving the coronavirus issue, casinos can go back to operating in a more-normal fashion. Customers would likely feel more comfortable going, occupancy limits would probably be lifted, and the extra costs for cleaning and health safety wouldn't be as big a concern. 

Still, some perspective is in order here. Creating a vaccine is no small feat. That the process is moving so rapidly is impressive, but there's still much more to be done before anyone can call the process complete. After that, there are production and distribution issues. And don't forget the need to convince enough people to take the vaccine to ensure it has the desired societywide effect. Getting a safe, effective vaccine into widespread use could take a very long time, which means casinos might be operating under the current rules and concerns for another year or more. 

BYD Chart

BYD data by YCharts.

Wall Street is usually a pretty emotional place, so good and bad news tends to lead to large stock prices moves. Today the news is good for casinos. That said, each of the stocks, even when you include today's gains, are down notably over the past month. The declines range from 9% for Boyd Gaming to 20% for Red Rock Resorts. Earlier bouts of enthusiasm, surrounding some of the very same coronavirus vaccine issues, weren't enough to support a sustainable rally. 

It's notable, too, that earnings season is starting, with MGM Resorts set to report on July 30 and Penn National on Aug. 6. Red Rock and Boyd have yet to announce their plans, but they won't be far behind. Investors should be prepared for dismal numbers since casinos were basically closed down in the second quarter.

Management teams will be focusing on the future, now that operations are restarting. But even there, it's still early. For example, some of Boyd's properties didn't reopen until July 1. Before jumping on the stocks because of a big daily move, long-term investors should take the opportunity to listen to a few of the conference calls here, just to see what's actually going on at the company level.

Now what

There's no way to tell what the future holds. But it's very clear that progress is being made on a coronavirus vaccine, and a successful vaccine would be very good for gambling companies. The problem is getting from here to there, which is likely to be more complicated than investors are willing to believe right now.

As the ups and downs in the process unfold, it's highly likely that the shares of casino operators like Penn National Gaming, Boyd Gaming, MGM Resorts International, and Red Rock Resorts will all continue to be volatile. 

Reuben Gregg Brewer 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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Stocks Mentioned

MGM Resorts International Stock Quote
MGM Resorts International
$34.71 (-2.09%) $0.74
Boyd Gaming Corporation Stock Quote
Boyd Gaming Corporation
$54.22 (-2.31%) $-1.28
Penn National Gaming, Inc. Stock Quote
Penn National Gaming, Inc.
$34.15 (-2.82%) $0.99
Red Rock Resorts, Inc. Stock Quote
Red Rock Resorts, Inc.
$40.32 (-3.03%) $-1.26

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

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