How To Invest In The Diverging Casino Space

Telsey Advisory Group recently initiated coverage of casino stocks and released a new report discussing the current state of the industry. Analyst David Katz sees a major divergence in the casino business these days, and believes that investors should make sure to be on the winning side of the trade.

Macau lacks a catalyst
The bad news for casino investors continues to be Macau. Katz sees Wynn Resorts Ltd WYNN as the biggest loser in Macau. Despite calling the company “the most effective operator in the industry,” Katz sees Wynn’s positioning as the premium/VIP destination in Macau as particularly vulnerable during the current downturn.

Katz argues that Las Vegas Sands Corp LVS and MGM Resorts International MGM have less exposure to Macau and generate a higher percentage of their business from the mass market.

U.S. names are strong
While Macau’s woes continue, U.S. regional gaming is booming. According to Katz, Las Vegas is benefiting from the general strength in the U.S. economy and the business that the market cycle brings to Las Vegas. He believes that MGM’s management is currently doing the best job of running the company that they have done in recent years. In addition, he notes that Boyd Gaming Corp BYD, which is the best play on the local Vegas market, has begun to demonstrate positive earnings momentum as well. 

Finally, Katz is also bullish on U.S. regional names. “The regional markets have also begun to demonstrate positive earnings momentum from positive top line trends for the first time since the economic downturn,” he explains.

Stock picks
Telsey’s top stock picks include Outperform-rated MGM, Boyd, Churchill Downs Inc CHDN and Isle of Capri Casinos Inc ISLE. Telsey has an Underperform rating on Wynn.