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2 Gaming Stocks to Bet on From a Promising Industry
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The Zacks Gaming industry is benefiting from improving visitation. Positive trends in Macau's gaming revenues are contributing to the sector's growth. Robust demand for sports betting is aiding the industry. The expansion of online betting offerings bodes well. Stocks like Light & Wonder, Inc. (LNW - Free Report) and Accel Entertainment, Inc. (ACEL - Free Report) will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that 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, restaurants, 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 benefits from improving visitation. In October, Macau’s gross gaming revenues (GGR) surged 400.2% year over year to MOP$19.5 billion (US$2.42 billion). For the first 10 months of 2023, GGR is up 315.6% 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 the same year, sports betting increased 72.7% year over year. In the first, the second and the third quarter of 2023, U.S. commercial gaming revenues reached $16.6 billion, $16.07 billion and $16.1 billion, respectively. This marks the industry’s eleventh 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 #70, which places it in the top 28% of more than 251 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 Sep 30, 2023, the industry’s northbound estimate for the current year has increased 5.3%.
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 20.6% over this period compared with the S&P 500 Index’s increase of 14.2% and the sector’s gain of 7.7%.
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 14.56. 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 19.8.
Over the past five years, the industry has traded as high as 17.53X and as low as 7.12X, with a median of 10.59X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past 5 Years)
2 Gaming Stocks to Watch for
Light & Wonder: Headquartered in Las Vegas, NV, the company is benefiting from robust SciPlay and iGaming revenue. In the third quarter, the company achieved its tenth consecutive quarter of increased consolidated revenue and marked its fifth consecutive quarter of year-over-year growth in the double digits.
Shares of this presently Zacks Rank #2 (Buy) company have increased 31.9% in the past year. In the past 30 days, earnings estimates for 2023 have increased 69.5% to $1.78. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: LNW
Accel Entertainment: Headquartered in Burr Ridge, IL, the company is benefiting from an increase in locations and gaming terminals. In third-quarter 2023, the company’s locations and gaming terminals increased 5% and 7% year over year, respectively.
Shares of this presently Zacks Rank #2 player have increased 17% in the past year. Moreover, ACEL’s 2023 earnings and sales are anticipated to increase by 3.5% and 19.4% each from the respective year-ago reported figures.
Price and Consensus: ACEL
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2 Gaming Stocks to Bet on From a Promising Industry
The Zacks Gaming industry is benefiting from improving visitation. Positive trends in Macau's gaming revenues are contributing to the sector's growth. Robust demand for sports betting is aiding the industry. The expansion of online betting offerings bodes well. Stocks like Light & Wonder, Inc. (LNW - Free Report) and Accel Entertainment, Inc. (ACEL - Free Report) will likely gain traction from this upbeat demand.
Industry Description
The Zacks Gaming industry includes companies that 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, restaurants, 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 benefits from improving visitation. In October, Macau’s gross gaming revenues (GGR) surged 400.2% year over year to MOP$19.5 billion (US$2.42 billion). For the first 10 months of 2023, GGR is up 315.6% 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 the same year, sports betting increased 72.7% year over year. In the first, the second and the third quarter of 2023, U.S. commercial gaming revenues reached $16.6 billion, $16.07 billion and $16.1 billion, respectively. This marks the industry’s eleventh 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 #70, which places it in the top 28% of more than 251 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 Sep 30, 2023, the industry’s northbound estimate for the current year has increased 5.3%.
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 20.6% over this period compared with the S&P 500 Index’s increase of 14.2% and the sector’s gain of 7.7%.
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 14.56. 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 19.8.
Over the past five years, the industry has traded as high as 17.53X and as low as 7.12X, with a median of 10.59X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past 5 Years)
2 Gaming Stocks to Watch for
Light & Wonder: Headquartered in Las Vegas, NV, the company is benefiting from robust SciPlay and iGaming revenue. In the third quarter, the company achieved its tenth consecutive quarter of increased consolidated revenue and marked its fifth consecutive quarter of year-over-year growth in the double digits.
Shares of this presently Zacks Rank #2 (Buy) company have increased 31.9% in the past year. In the past 30 days, earnings estimates for 2023 have increased 69.5% to $1.78. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: LNW
Accel Entertainment: Headquartered in Burr Ridge, IL, the company is benefiting from an increase in locations and gaming terminals. In third-quarter 2023, the company’s locations and gaming terminals increased 5% and 7% year over year, respectively.
Shares of this presently Zacks Rank #2 player have increased 17% in the past year. Moreover, ACEL’s 2023 earnings and sales are anticipated to increase by 3.5% and 19.4% each from the respective year-ago reported figures.
Price and Consensus: ACEL