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Why Casino Stocks Have Jumped This Week

By Travis Hoium – Aug 27, 2021 at 12:39PM

Key Points

  • Macao eased some travel restrictions.
  • Online gambling was hot again.
  • The Federal Reserve seems likely to keep fueling low interest rates, potentially maintaining low borrowing costs for casino companies.

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Macao, online gambling, and QE were all working in favor of casino stocks this week.

What happened 

Shares of casino stocks jumped across the industry this week, according to data provided by S&P Global Market Intelligence. Stocks with exposure to Macao like MGM Resorts (MGM -0.51%), Las Vegas Sands (LVS 2.28%), and Wynn Resorts (WYNN 1.32%) jumped as Macao eased some travel restrictions to the region. U.S. casino operators Penn National (PENN -1.88%), Caesars Entertainment (CZR -0.89%), and Boyd Gaming (BYD -1.73%) jumped on a combination of bullishness for online gambling and the relief of investors who think low interest rates will last a little longer. Here's a look at how these stocks performed from the close of the market last Friday through the close of the market on Thursday, Aug. 26. 

Company Performance This Week
MGM Resorts 9.3%
Penn National 19.5%
Caesars Entertainment 16.8%
Las Vegas Sands 14.6%
Wynn Resorts 12.8%
Boyd Gaming 8.8%

Source: Yahoo! Finance. 

With so many moving parts for casino stocks, let's break down what happened this week. 

Roulette wheel on a black background.

Image source: Getty Images.

So what 

The biggest news was out of Macao, where the government eased a rule that visitors from Guangdong province in China need a negative COVID-19 test from within 48 hours prior to arrival. The new regulation specifies a negative test from within seven days. This may seem like a small change, but for travelers going to Macao on short notice, it's great news.

Macao is critical to operators like MGM, Wynn, and Las Vegas Sands because it's been the world's largest gambling market for about a decade. But gambling revenue in the region was just $1.05 billion in July, down from $2.84 billion in July 2019. There's a long way to go for the region to fully recover, so any good news is usually cheered by the market. 

In the U.S., online gambling was in focus. After a rough summer, investors are betting that the upcoming college football and NFL seasons will lead to an increase in online gambling. Brick-and-mortar casinos have recovered well, but there's still an opportunity for more casual gambling on football from home. If football does indeed become a cash generator from the online business, MGM, Penn National, and Caesars likely have the most to gain. 

There were also market tailwinds behind casino stocks this week. Federal Reserve Chair Jerome Powell has indicated the central bank won't take its foot off the gas too quickly when it comes to quantitative easing or interest rates. The idea for casino investors is that this will lead to continued low interest rates on debt, which could help drive better profitability from both brick-and-mortar and online casinos. 

Now what 

The hope for investors is that a recovery in Macao and growth in online gambling will turn casino stocks into growth stocks once again. This week, the tailwinds were behind these stocks as it seemed every bit of news was good for the industry. 

What we haven't seen is these companies really turning the corner financially. Business is still down, particularly in Macao, and while there are signs of optimism, we need to see results eventually. I'm holding on to my casino shares this week, but don't be surprised to see more volatility if news from Macao or online gambling companies isn't as favorable as hoped in coming weeks. 

Travis Hoium owns shares of MGM Resorts International and Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Mgm Resorts International Stock Quote
Mgm Resorts International
MGM
$37.08 (-0.51%) $0.19
Las Vegas Sands Stock Quote
Las Vegas Sands
LVS
$47.96 (2.28%) $1.07
Caesars Entertainment, Inc. Stock Quote
Caesars Entertainment, Inc.
CZR
$51.38 (-0.89%) $0.46
Wynn Resorts Stock Quote
Wynn Resorts
WYNN
$85.15 (1.32%) $1.11
Penn National Gaming Stock Quote
Penn National Gaming
PENN
$35.03 (-1.88%) $0.67
Boyd Gaming Stock Quote
Boyd Gaming
BYD
$59.82 (-1.73%) $-1.05

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

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