2 Gambling Stocks to Buy, 2 to Avoid
The gambling industry is expected to thrive in the post-pandemic environment due to the tourism industry's rebound and rising disposable income. Furthermore, online gambling and sports betting are becoming extremely...
The gambling industry is expected to thrive in the post-pandemic environment due to the tourism industry's rebound and rising disposable income. Furthermore, online gambling and sports betting are becoming extremely popular due to advanced technologies and added convenience. Given this backdrop, we think the stocks of fundamentally sound companies Full House Resorts (FLL) and International Game Technology (IGT) could be ideal bets. However, we are concerned that DraftKings (DKNG) and Las Vegas Sands (LVS) may not be able to capitalize on the industry tailwinds because of their weak fundamentals. So, we think these stocks are best avoided now. Read on.
The gambling industry was hard hit when strict restrictions were imposed on travel and entertainment activities in response to the COVID-19 pandemic. However, the launch of online gambling has helped the industry significantly offset losses caused by the pandemic. Advanced technologies and convenience should help online gambling continue gaining popularity. Gambling revenue hit all-time highs in 2021, driven by digital-realm integrations and an increasing societal inclination toward legalized sports betting.
Along with the growing popularity of online gambling, a potential jump in travel and tourism and rising disposable income should drive a significant increase in the footprint of physical casinos. The American casino industry is currently worth more than $261 billion and provides 1.8 million jobs throughout the country.
Given the industry's growth prospects, we think fundamentally sound stocks Full House Resorts, Inc. (FLL) and International Game Technology PLC (IGT) could be quality additions to one's portfolio. However, DraftKings Inc. (DKNG) and Las Vegas Sands Corp. (LVS) do not look well-positioned to capitalize on the industry tailwinds. So, these stocks are best avoided now.
Stocks to Buy:
Full House Resorts, Inc. (FLL)
FLL in Las Vegas owns, develops, invests in, operates, manages, and leases casinos and related hospitality and entertainment facilities. It manages its casinos based on geographic regions within the United States.
FLL's revenues increased 13.1% from the prior-year quarter to $43.27 million in its fiscal fourth quarter ended Dec. 31, 2021. Its net income for the quarter came in at $5.05 million, reflecting a 44.2% increase year-over-year, while its EPS stood at $0.14, up 16.7% year-over-year.
The consensus EPS estimate for its fiscal first quarter, ended March 31, 2022, represents an 86.6% improvement year-over-year. The $42.37 million consensus revenue estimate for the same quarter represents a 0.4% increase from the same period last year. It has an impressive earnings surprise history; it topped the Street's EPS estimates in three of the trailing four quarters.
FLL's stock has gained 10% in price over the past three months to close the last trading session at $9.01.
FLL's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
FLL also has a B grade in Sentiment. It is ranked #7 of 33 stocks in the Entertainment - Casinos/Gambling industry.
Beyond what is stated above, we have also rated FLL for Momentum, Stability, Value, Quality, and Growth. Get all the FLL ratings here.
International Game Technology PLC (IGT)
IGT is an end-to-end gaming company that operates and provides gaming technology products and services. The London-based concern operates in three segments: Global Lottery; Global Gaming; and Digital & Betting.
On April 14, 2022, IGT announced the introduction of its Infinity Instants games to transform and enhance instant ticket design and gameplay by using innovative printing techniques. "The technology behind Infinity Instants disrupts and revolutionizes traditional instant ticket printing and endorses IGT's commitment to delivering growth-driving, player-tested, innovative solutions for lotteries," said Jay Gendron, IGT COO, Global Lottery.
The company also announced the expansion of its patent cross-licensing agreement with Aristocrat Leisure. Under the agreement, IGT will be able to offer licenses to the companies' combined game features and RGS patent portfolios to the global gaming industry. "This combination of two of the gaming industry's most valuable game features and RGS patent portfolios can help propel the evolution of gaming with compelling content and advanced game mechanics," said Renato Ascoli, IGT CEO Global Gaming.
IGT's total revenue increased 18.6% year-over-year to $1.05 billion in its fiscal fourth quarter, ended Dec. 31, 2021. Its total operating income grew 93.8% from its year-ago value to $186 million, while its total non-GAAP EBITDA improved 31.2% year-over-year to $387 million. The company's net cash provided by operating activities increased 57.8% from its year-ago value to $396 million.
Analysts expect IGT's revenue for its fiscal quarter ended March 31, 2022, to come in at $1.03 billion, indicating a 1.9% increase year-over-year. Also, the company's EPS is expected to grow 68.5% year-over-year to $0.33 in the same quarter.
IGT's shares have gained 21.7% in price over the past year to close the last trading session at $21.25.
It is no surprise that IGT has an overall B rating, which equates to Buy in our POWR Ratings system. IGT also has a B grade in Value and Quality. It is ranked #8 in the Entertainment - Casinos/Gambling industry.
In addition to the POWR Rating grades I have just highlighted, you can see the IGT's ratings for Growth, Momentum, Stability, and Sentiment here.
Stocks to Avoid:
DraftKings Inc. (DKNG)
Boston-based DKNG operates as a digital sports entertainment and gaming company in the United States and internationally through business-to-consumer and business-to-business.
For its fiscal year ended Dec 31, 2021, DKNG's loss from operations increased 85.2% year-over-year to $1.56 billion. Its net loss for the period increased 23.7% from the prior-year quarter to $1.52 billion. And its net cash flows used in operating activities stood at $419.51 million, up 116.1% from the year-ago quarter.
The negative $1.20 consensus EPS estimate for its fiscal first quarter, ended March 31, 2022, indicates a 37.9% year-over-year decline. Also, the EPS estimates are expected to decline 2.1% to $3.86 for its fiscal year ended Dec. 31, 2022.
The stock has declined 76.5% in price over the past year and 71.6% over the past nine months to close yesterday's trading session at $13.87.
DKNG's POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system.
DKNG has a Stability grade of F and Growth, Value, Sentiment, and Quality grades of D. In the Entertainment - Casinos/Gambling industry, the stock is ranked #33. Click here to see the additional POWR Ratings for DKNG (Momentum).
Las Vegas Sands Corp. (LVS)
LVS in Paradise, Nev., is a global developer of destination properties. It owns and operates integrated resorts in Asia and the United States. Its principal operating and developmental activities occur in three geographic areas: Macao; Singapore; and the United States.
In February, LVS announced the completion of its sale of The Venetian Resort to Apollo Global Management, Inc., and VICI Properties Inc. for approximately $6.25 billion. The company will reinvest the cash proceeds in its Asian portfolio and pursue land-based development opportunities.
For its fiscal quarter ended March 31, 2022, LVS' net revenues decreased 21.2% year-over-year to $943 million. Its operating loss decreased 214.6% from the prior-year period to $302 million. The company's adjusted EBITDA came in at $110 million, down 54.9% from the prior-year period.
TheStreet expects the EPS estimate for the fiscal second quarter ending June 30, 2022, to be negative $0.07. Also, the company could not surpass the consensus EPS estimates in three of the trailing four quarters.
The stock has slumped 42.6% in price over the past year to close yesterday's trading session at $34.84. It has declined 20.1% over the past nine months.
LVS' POWR Ratings are consistent with this bleak outlook. It has an overall D rating, which translates to Sell in our proprietary rating system. The stock also has a D grade for Value and Stability. It is ranked #28 in the Entertainment - Casinos/Gambling industry.
To see the additional POWR Ratings for Quality, Growth, Momentum, and Sentiment for LVS, click here.
FLL shares were unchanged in premarket trading Thursday. Year-to-date, FLL has declined -25.60%, versus a -10.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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