Although the casino industry has gotten off to a slow start in 2022 due to the Omicron variant, business levels are gradually improving as both case counts and concerns around COVID began to subside. With the easing of government-mandated restrictions, the casino industry is likely to have witnessed pent-up demand for gaming and entertainment offerings during first-quarter 2022.

Consistency in consumer visitation trends and increased spending levels have aided the industry. Per the American Gaming Association, casino visitation levels (as of February 2022) remained largely unchanged from recent months, with admissions in Illinois, Iowa, Louisiana, Mississippi and Missouri increasing 21.8% year over year. Positive international leisure trends backed by the return of international flight capacity indicate growth.

Casino operators continue to focus on a disciplined operational approach through streamlining the business, optimizing marketing initiatives and renegotiating vendor and third-party agreements. The companies have increased their focus on services and staffing levels to welcome gamers. Casino operators are investing heavily in land-based and online operations to encash effective organic marketing and monetization opportunities. Also, progress toward additional product features and functionality for mobile sports betting and iGaming apps are driving increased customer retention and monetization and improved margins.

Backed by the respective company-specific initiatives, it is worth mentioning that gaming revenues in the United States have surpassed pre-pandemic levels. Per the American Gaming Association, combined commercial gaming revenues (from land-based casino games, sports betting and internet gaming) in February 2022 came in at $4.42 billion, up 37% and 17% from 2021 and 2020 levels, respectively. The upside was primarily driven by growth in slot revenues and sustained strength of sports betting and iGaming. Commercial gaming revenues (for the two months ended February 2022) came in at $8.96 billion, up 20% from 2020 levels.

Given the onset of the macroeconomic challenges, the majority of the companies are grappling with supply chain, labor and inflationary hurdles. Although enhanced travel restrictions continue to press visitations in China, resilience has been noted at the premium mass level (from both a gaming and retail perspective) during stages of relaxation in restrictions.

How to Make the Right Pick?

Given the wide range of companies in this space, the task is by no means easy. While it is impossible to be sure of the outperformers, our proprietary methodology — a positive Earnings ESP along with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is our proprietary methodology to identify stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Our Choices

Here are a few gaming companies that investors can check out.

Golden Entertainment, Inc. (GDEN Quick QuoteGDEN - Free Report) is scheduled to report first-quarter 2022 results on May 5. The company has a Zacks Rank #2 and an Earnings ESP of +7.72%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Golden Entertainment’s first-quarter performance is likely to have benefited from increased demand, new player additions, casino marketing programs and property development initiatives. This and the return of citywide conventions along with entertainment and sporting events are likely to have translated to further recovery of room nights in the to-be-reported quarter. Moreover, benefits arising on account of continued migration to Nevada are likely.

The Zacks Consensus Estimate for first-quarter 2022 earnings line is pegged at 49 cents per share, suggesting growth of 40% from 35 cents reported in the prior-year quarter.

Penn National Gaming, Inc. (PENN Quick QuotePENN - Free Report) is scheduled to report first-quarter 2022 results on May 5. The company has a Zacks Rank #3 and an Earnings ESP of +9.50%.

Penn National’s first-quarter performance is likely to have benefitted from is likely to have benefited from the expansion of Barstool Sports betting app, differentiated omnichannel strategy and disciplined marketing approach. This and an emphasis on cross-sell opportunities, the rollout of 3C’s technology and product developments are likely to have aided the company’s performance in the to-be-reported quarter.

The Zacks Consensus Estimate for first-quarter 2022 earnings line is pegged at 45 cents per share, suggesting a decline of 18.2% from 55 cents reported in the prior-year quarter.

DraftKings Inc. (DKNG Quick QuoteDKNG - Free Report) is scheduled to report first-quarter 2022 results on May 5. The company has a Zacks Rank #3 and an Earnings ESP of +6.69%.

DraftKings’ first-quarter performance is likely to have benefited from increasing global demand for online gambling and sports betting. The robust demand for iGaming, such as Roulette and Blackjack, benefits from a spike in user activity. The trend is expected to have continued in the to-be-reported quarter. To further expand its reach and strengthen its user base, the company has been continuously working on adding depth to its mobile sports betting and iGaming products. It is expected to witness strong growth in its B2C business, driven by payer acquisition and retention as well as player engagement and monetization.

The Zacks Consensus Estimate for first-quarter 2022 bottom line is pegged at a loss of $1.22 per share, suggesting a decline of 40.2% from a loss of 87 cents reported in the prior-year quarter.

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