What happened

Shares of casino operator Wynn Resorts (NASDAQ:WYNN) jumped a hefty 20% in the month of August according to data from S&P Global Market Intelligence. However, that was chump change compared to MGM Resorts International (NYSE:MGM), which saw its share price rise just under 40%. And even that advance was outdistanced by Caesars Entertainment (NASDAQ:CZR), which was up 47.5% in the month. It would be an understatement to say that August was good to casino names. 

However, there's a larger picture here. Even after those big monthly gains, Caesars was still down by 23% through the first eight months of 2020. MGM was lower by 32% over that span. And Wynn pulled up the rear, with a 37% decline. At one point in the year the stocks were down between 60% and 90%, so the losses today represent a vast improvement. But all of this just speaks to the very real issues Wynn, MGM, and Caesars are facing.

So what

The key thing to watch here, which is unlikely to surprise anyone, is COVID-19. The global effort to slow the pandemic led to governments closing non-essential businesses (casinos easily qualify) and enacting social distancing guidelines, both of which had investors fearing the worst during the early 2020 bear market. However, a lot has changed since April.

A woman at a slot machine

Image source: Getty Images.

Caesars and Eldorado Resorts merged their businesses in late July. When the combined entity, which kept the iconic Caesars name, reported earnings in early August, it was terrible reading, with second-quarter revenue down by nearly 80%. Earnings were deeply negative. But investors were expecting that and focused, instead, on the fact that Caesars had reopened 51 of its properties. And in mid-August the company announced that it was, basically, testing bringing back entertainment options (of the outdoor variety) in Atlantic City with a portion of the proceeds going to charity. In other words, Caesars is working hard to get its business back to some semblance of normal. Investors clearly viewed this positively.   

MGM Chart

MGM data by YCharts

The same trends held at MGM Resorts. This casino operator reported second-quarter earnings at the tail end of July. Revenue fell by roughly 90% and earnings were deep in the red. However, there was some good news in that the company had begun the process of reopening its physical locations. Throughout August it offered up additional positives, including the reopening of the Mirage in Las Vegas and the launch of online gaming in West Virginia. In early August, meanwhile, IAC/Interactive (NASDAQ:IAC), an internet-focused investor, took a position in the company and was granted two seats on MGM's board. The goal is for IAC to help further MGM's online push, which was the focus of a number of positive news releases in August beyond the West Virginia expansion of the company's BetMGM online business. Investors liked what they heard, particularly since MGM is increasingly capable of serving gamblers who wish to stay safely in their own homes.  

Like its peers above, Wynn Resorts reported dismal results when it released earnings in early August. Revenue was down nearly 95% and the net loss was extremely large. Investors, for the most part, weren't expecting anything different than that. The key takeaway from the release, however, was summed up by CEO Matt Maddox, who, in something of an understatement, said, "We are pleased to be up and running again in each of our markets." Investors obviously were pretty pleased about that little fact, too, which suggests that the worst is now behind the global gambling concern.   

Now what

That casino operators are starting to get their businesses back up and running is clearly very good news. However, it's important for investors to see the bigger picture. So long as COVID-19 remains a concern, Wynn, MGM, and Caesars will all be working with higher costs (for things like extra cleaning regimens) and lower revenues (due to occupancy constraints and the reluctance of customers to venture into group settings). These companies have definitely started to turn things around, but there's still a long way to go before their operations are back to anything close to normal. A breakthrough on the vaccine front could lead to a sudden stock rally here, but it's more likely that further price gains will be hard won and driven by visible improvement on the business front. Long-term investors shouldn't look at August's big stock advances and assume that casino operators Wynn, MGM, and Caesars are back on their game.