Despite rolling "snake eyes" when the coronavirus pandemic caused lockdowns throughout the U.S. earlier this year, gambling companies are showing signs of life as many states begin to allow limited reopening of casinos. Caesars Entertainment (NASDAQ:CZR) saw a 22% rebound in September, likely related both to its ESPN partnership and its announced acquisition plans for English sportsbook company William Hill (LSE:WMH)

While Caesars isn't faring badly in its recovery, its stock still hasn't regained the full value it had before the coronavirus struck. Additionally, the rise of COVID-19 hospitalizations could be threatening another wave of lockdowns and an abrupt drop in the modest gains made by in-casino gambling during the summer months. With the earliest possible release of COVID-19 vaccines in the U.S. still roughly two months away, according to a recent estimate from Dr. Anthony Fauci, Fools investing in consumer discretionary stocks might want to weigh several factors before buying shares of Caesars. 

The "pool oasis" at Caesars Palace Garden of the Gods.

Image source: Caesars Entertainment.

The current situation for casinos

While casinos have made a partial comeback from the disastrous days of March, April, and May, potential storm clouds still lurk on the horizon for physical casino locations. The Nevada Gaming Control Board reports total gaming win for August 2020 was down 22.08% year over year, while, for September 2020, total gaming win fell 22.38% compared to the year-ago figure. On the Las Vegas Strip itself, gaming win plunged 39.14% year over year.

The difference in lost Nevada gaming win between August and September is only slight, but it shows the recovery has plateaued, at least for the time being, and could even potentially reverse if a new outbreak intensifies. Additionally, while the metrics only show the gaming win from a single state, Nevada is a good barometer of legal gambling activity throughout the U.S. Nevada's gross gaming revenue (GGR) of $12 billion in 2019 dwarfed the second-largest state GGR, $3.5 billion in New Jersey, and accounted for 27.5% of the $43.6 billion national GGR, according to Statista research.

Furthermore, COVID-19 could be winding up to deliver another economic blow to the hospitality and gambling industry. The Week reports that hospitalizations are setting new records in 13 U.S. states, and while Nevada is not among them, the trend could still scare off potential visitors and depress leisure travel's recovery. More than 1,000 people in the U.S. are dying daily from the coronavirus again, too, potentially making physical visits to casinos and resorts less attractive, even with beefed-up sanitation and social distancing.

A doctor in protective gear studying a patient's chest x-ray.

Image source: Getty Images.

Nevada itself isn't yet breaking its previous records, but cases there have also shown a sharp recent upswing. The key market for Caesars' in-casino revenue is currently in a "red zone," with rising infection rates and moderate to high levels of community transmission in 71% of Nevada counties.

How is Caesars holding up?

Caesars' third-quarter results are due out Nov. 5 and will provide a clearer picture of its current situation, but enough information is available now to get decent understanding of the company's position. Beyond the fluff of bringing live entertainment back to the Strip and other marketing gestures, the company has several important strengths likely to come into play in the medium to long term.

The July merger of Eldorado Resorts and Caesars into the single Caesars Entertainment entity created a massive enterprise, the biggest casino company in the U.S., with a presence in 16 states and approximately 55 properties, with eight located on the Las Vegas Strip. Combining the two companies should allow the newly minted Caesars to cut expenses by $500 million within the first year after closing, or in other words by July 2021, according to executive statements.

Placing all of the geographically far-flung properties of the two entities under a single management structure will almost certainly allow CEO Tom Reeg to eliminate a lot of redundancy and administrative bloat. According to some forecasts, the larger, leaner casino could see revenue exceed $8.75 billion, amounting to a 114% increase, once the brake of COVID-19's economic effect is released.

Caesars is also diversifying its strategic approach with an aggressive push into digital sports betting, one of 2020's major growth sectors. Caesars recently bought online bookmaker William Hill, and an analysis by casino investment bank Union Gaming suggests the market may be seriously undervaluing the acquisition's potential. The research claims the William Hill purchase is being valued at only $3.8 billion by investors, 15% of online sports betting company DraftKings' (NASDAQ:DKNG) value, yet has the same revenue potential as DraftKings.

Even if Union Gaming's specific estimates are ignored, Caesars said in a press release it made the acquisition based on a "compelling strategic rationale," driven by such factors as "a potential total addressable market size ranging up to $30-35 billion." It also cited its ability to completely develop William Hill's American sports betting and online betting operations by merging them into its own, meshing them with Caesars' exclusive partnerships with a range of sports teams, and giving Caesars' 60 million-strong loyalty members immediate access to wagering through William Hill, where legal.

A man using a laptop to place sports bets online, with earphones, a coffee cup, and a potted plant next to the computer.

Image source: Getty Images.

Sports betting, including online forms, has shown vigorous growth over the past few years, and extremely strong gains in 2020. According to Zion Market Research, the sector could see an 8.83% compound annual growth rate through 2024, rising to approximately $155 billion by that year.

To buy or not to buy

Buying stock in Caesars Entertainment before there's a COVID-19 vaccine seems like a potentially rewarding move for those interested in casino investments. In fact, with COVID-19 keeping Caesars' share price near or below pre-pandemic levels for the moment, this could be viewed as a buying opportunity. Caesars proved its ability to reach higher prices even before many of the benefits of its recent moves -- including the merger and its William Hill acquisition -- entered completely into the equation.

The true potential of many 2020 developments will be fully unlocked once COVID-19 is controlled by a vaccine. Today's larger, more efficient Caesars, with casinos and other properties in 16 U.S. states and abroad, is well-positioned to meet pent-up demand both in Las Vegas and beyond, once resort and gambling demand returns to full strength. In the meantime, its robust entry into the explosively growing digital sportsbook market taps another major revenue source, one immune to COVID-19 and likely to continue growing even in a post-coronavirus world.

When that day arrives, those who added the casino company to their portfolio before the vaccine will likely see a significant jump in the value of their holdings, perhaps even as high as the $100 per share predicted by some analysts, making this a good stock to consider buying now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.