Image source: Wynn Resorts.
After a rough start to the year, the last month has been great for gaming investors. According to S&P Capital IQ data, Caesars Entertainment(CZR), Melco Crown (MLCO -1.28%), Wynn Resorts (WYNN -1.16%), Las Vegas Sands (LVS -0.92%), MGM Resorts (MGM 0.90%), and Boyd Gaming (BYD -0.43%) have all risen more than 20% since the start of October and the momentum isn't slowing down. Is this a blip on our radar or a trend for gaming stocks?
Why U.S. gaming stocks are up
For most of the last decade, the U.S. gaming industry has been under pressure for one reason or another. The two biggest challenges were the recession's hit on gaming demand and an expansion of regional gaming increased competition. Those two factors caused earnings to drop and stocks fell with them.
But most of that pressure appears to be behind us as the economy slowly improves and the regional expansion slows. Boyd Gaming's third-quarter earnings results that showed a 3.3% rise in revenue and a 20% increase in adjusted EBITDA are signs that momentum is back in the U.S.
In Las Vegas, the economic trouble that has hit Macau has leaked to U.S. gaming companies, which have seen a dramatic drop in baccarat play in the past year. But in September (the most recent month reported), gaming revenue on the Las Vegas Strip was up 2% from a year ago versus a 3.6% decline for the last 12 months. And even baccarat play was up. So, companies like Caesars and MGM Resorts should be seeing stronger revenue than a lot of investors expected.
The Parisian, Las Vegas Sands' newest resort. Image source: Las Vegas Sands.
Macau may have hit bottom
Like Las Vegas, Macau may finally be on the road to recovery after a terrible year. I recently wrote that October's gaming revenue of $2.51 billion is a nice increase from an average of $2.32 billion in the prior six months and with new resorts from Melco Crown, Wynn Resorts, MGM, and Las Vegas Sands coming, it's a needed increase.
Investors may be getting a little ahead of themselves calling a month's increase a trend, but after the rapid plunge, we've seen in gaming revenue since early 2014 even a slight improvement can get investors excited.
Can the gaming momentum continue?
Outside of Caesars Entertainment, which I wouldn't touch with a 10-foot pole, the trend appears to be positive for gaming stocks long term. China's downturn because of a corruption crackdown and business uncertainty has been harsh but mass market players are still coming in droves, which will drive growth long term. And in the U.S. the improving economy is making traveling to casinos attractive once again.
The strong data in gaming may not last forever, but for the past month it's been enough to push gaming stocks higher and bets investors made on these stocks are starting to pay off.
