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The Zacks Gaming industry is benefiting from improving visitation. Positive trends in Macau's gaming earnings are contributing to the sector's growth. Moreover, robust demand for sports betting is aiding the industry. The expansion of online betting offerings bodes well. Stocks like MGM Resorts International (MGM - Free Report) and DraftKings Inc. (DKNG - Free Report) will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that primarily own and operate integrated casinos, hotels and entertainment resorts. Some industry players also deliver technology products and services across lotteries, electronic gaming machines, sports betting and interactive gaming. Some firms develop and operate gaming establishments and associated lodging, restaurant, horse racing and entertainment amenities. Many companies are also involved in developing and selling gaming applications. E-sports or sporting events or tournament services, content management systems, video software, mobile applications and e-sports data platform solutions are provided as well.
Key Themes Shaping the Gaming Industry
Visitation Improving: The industry is benefiting from improving visitation. In July, Macau’s gross gaming revenue (GGR) jumped 4,082.9% year over year to MOP$16.66 billion (US$2.06 billion). For the first seven months of 2023, GGR is up 263% year over year. Robust investment will continue to aid the gaming industry in Macau. In the next 10 years, six casino companies will invest nearly $15 billion.
U.S. Commercial Gaming Revenues Make Record: The gaming industry in the United States continues to perform better than expected. Per the American Gaming Association data, revenues from gambling hit a record high of $60.42 billion in 2022. In 2022, sports betting increased 72.7% year over year. In the first and the second quarter of 2023, U.S. commercial gaming revenues reached $16.6 and $16.07 billion. This marks the industry’s tenth straight record-breaking quarter. The U.S. gaming industry will continue to improve.
Sports Betting a Major Driver: The legalization of sports betting in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire has been driving growth for a while. Moreover, bettors can now place wagers via digital platforms in Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona, Montana, Colorado and other states. Some popular gaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and BetMonarch.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Gaming industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #109, which places it in the top 44% of more than 245 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since Mar 31, 2023, the industry’s northbound estimate for the current year has increased 221.4%.
Given their strong fundamentals, we will present a few gaming stocks that one can add to the investment portfolio. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector and the S&P 500
The Zacks Gaming industry has outpaced the S&P 500 Index and the broader Zacks Consumer Discretionary sector over the past year. The industry has gained 14.9% over this period compared with the S&P 500 Index’s increase of 6.3% and the sector’s gain of 1.1%.
One-Year Price Performance
Gaming Industry's Valuation
Since gaming companies are debt-laden, valuing the same based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio makes sense. The industry currently has a forward 12-month EV/EBITDA ratio of 10.00. The space is trading at a discount compared to the market at large, as the forward 12-month EV/EBITDA ratio for the S&P 500 is 11.07.
Over the past five years, the industry has traded as high as 21.73X and as low as 5.93X, with a median of 14.00X, as the chart below shows.
Enterprise Value-to EBITDA Ratio (Past 5 Years)
2 Gaming Stocks to Watch for
MGM Resorts: Based in Las Vegas, Nevada, MGM Resorts is benefiting from increased business volume and travel activity, primarily at MGM China and Las Vegas Strip Resorts. Also, focus on international expansion, sports betting, asset-light strategy and non-gaming activities bodes well. The company is optimistic regarding BetMGM operations as it anticipates revenue contributions of $1.8 billion-$2 billion in 2023.
Shares of this presently Zacks Rank #1 (Strong Buy) company have increased 22.4% in the past year. In the past 30 days, earnings estimates for 2023 have increased 17.6% to $2.47. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: MGM
DraftKings: Headquartered in Boston, Massachusetts, DraftKings is benefiting from increasing global demand for online gambling and sports betting. DraftKings is live with mobile sports betting in 21 states that collectively represent approximately 44% of the U.S. population. The company operates iGaming in five states, representing approximately 11% of the U.S. population.
Shares of this presently Zacks Rank #2 (Buy) player have increased 59.6% in the past year. Moreover, DKNG’s 2023 earnings and sales are anticipated to increase 49.1% and 57.7% each from the respective year-ago reported figures.
Price and Consensus: DKNG
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2 Gaming Stocks to Buy From a Promising Industry
The Zacks Gaming industry is benefiting from improving visitation. Positive trends in Macau's gaming earnings are contributing to the sector's growth. Moreover, robust demand for sports betting is aiding the industry. The expansion of online betting offerings bodes well. Stocks like MGM Resorts International (MGM - Free Report) and DraftKings Inc. (DKNG - Free Report) will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that primarily own and operate integrated casinos, hotels and entertainment resorts. Some industry players also deliver technology products and services across lotteries, electronic gaming machines, sports betting and interactive gaming. Some firms develop and operate gaming establishments and associated lodging, restaurant, horse racing and entertainment amenities. Many companies are also involved in developing and selling gaming applications. E-sports or sporting events or tournament services, content management systems, video software, mobile applications and e-sports data platform solutions are provided as well.
Key Themes Shaping the Gaming Industry
Visitation Improving: The industry is benefiting from improving visitation. In July, Macau’s gross gaming revenue (GGR) jumped 4,082.9% year over year to MOP$16.66 billion (US$2.06 billion). For the first seven months of 2023, GGR is up 263% year over year. Robust investment will continue to aid the gaming industry in Macau. In the next 10 years, six casino companies will invest nearly $15 billion.
U.S. Commercial Gaming Revenues Make Record: The gaming industry in the United States continues to perform better than expected. Per the American Gaming Association data, revenues from gambling hit a record high of $60.42 billion in 2022. In 2022, sports betting increased 72.7% year over year. In the first and the second quarter of 2023, U.S. commercial gaming revenues reached $16.6 and $16.07 billion. This marks the industry’s tenth straight record-breaking quarter. The U.S. gaming industry will continue to improve.
Sports Betting a Major Driver: The legalization of sports betting in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire has been driving growth for a while. Moreover, bettors can now place wagers via digital platforms in Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona, Montana, Colorado and other states. Some popular gaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and BetMonarch.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Gaming industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #109, which places it in the top 44% of more than 245 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since Mar 31, 2023, the industry’s northbound estimate for the current year has increased 221.4%.
Given their strong fundamentals, we will present a few gaming stocks that one can add to the investment portfolio. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector and the S&P 500
The Zacks Gaming industry has outpaced the S&P 500 Index and the broader Zacks Consumer Discretionary sector over the past year.
The industry has gained 14.9% over this period compared with the S&P 500 Index’s increase of 6.3% and the sector’s gain of 1.1%.
One-Year Price Performance
Gaming Industry's Valuation
Since gaming companies are debt-laden, valuing the same based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio makes sense. The industry currently has a forward 12-month EV/EBITDA ratio of 10.00. The space is trading at a discount compared to the market at large, as the forward 12-month EV/EBITDA ratio for the S&P 500 is 11.07.
Over the past five years, the industry has traded as high as 21.73X and as low as 5.93X, with a median of 14.00X, as the chart below shows.
Enterprise Value-to EBITDA Ratio (Past 5 Years)
2 Gaming Stocks to Watch for
MGM Resorts: Based in Las Vegas, Nevada, MGM Resorts is benefiting from increased business volume and travel activity, primarily at MGM China and Las Vegas Strip Resorts. Also, focus on international expansion, sports betting, asset-light strategy and non-gaming activities bodes well. The company is optimistic regarding BetMGM operations as it anticipates revenue contributions of $1.8 billion-$2 billion in 2023.
Shares of this presently Zacks Rank #1 (Strong Buy) company have increased 22.4% in the past year. In the past 30 days, earnings estimates for 2023 have increased 17.6% to $2.47. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: MGM
DraftKings: Headquartered in Boston, Massachusetts, DraftKings is benefiting from increasing global demand for online gambling and sports betting. DraftKings is live with mobile sports betting in 21 states that collectively represent approximately 44% of the U.S. population. The company operates iGaming in five states, representing approximately 11% of the U.S. population.
Shares of this presently Zacks Rank #2 (Buy) player have increased 59.6% in the past year. Moreover, DKNG’s 2023 earnings and sales are anticipated to increase 49.1% and 57.7% each from the respective year-ago reported figures.
Price and Consensus: DKNG