Casinos have been hit particularly hard amid the coronavirus pandemic as they’ve been forced to shutdown operations in an effort to help curb the spread of the deadly virus.
But even as the sector remains under pressure, there are two casino stocks that traders say may have hit bottom.
BK Asset Management managing director of FX strategy, Boris Schlossberg, says the worst may be over for the group and says Las Vegas Sands (NYSE: LVS), in particular, looks primed for a rebound.
According to Schlossberg, LVS “stands the best chance to rise from the rubble at this point. Yes, absolutely Macao’s gaming has just come to a complete standstill. But that’s not the first time in that region for people to be dealing with a pandemic. In Asia, I think the population is just much more adaptive, and as soon as there is a green light or even a yellow caution light, they’re going to reenter the arena.”
Las Vegas Sands sees 63% of its revenue from Macau, making it one of the most exposed U.S. casino names to the Asian gambling mecca. However, Las Vegas Sands executives expressed optimism in the casino operator’s latest earnings call.
“We feel pretty confident we’ll be back to a much better place this summer and then a much better place in the fall,” said CEO Robert Goldstein. “And we have seen evidence of pent-up demand like crazy from our customers who are asking when and we talk to them pretty regularly. So, feel pretty good about the return in Macau first, far beyond what we’re going to see in the U.S.”
“LVS, which has a very strong balance sheet, is going to really be able to capitalize on the position,” Schlossberg said. “So, despite the gloom and doom, I think Asia should rebound first and LVS will be the beneficiary. In the meantime, I think the fact that they have a very strong balance sheet allows them to opportunistically look for other acquisitions. So, overall long term I think they’re going to come out of this a winner.”
JPMorgan analyst Joseph Greff recently upgraded his rating on LVS to Overweight from Neutral, noting that the stock’s recent trading in the $40s makes for a good entry point.
“We view LVS as a way to play what should be improving GGR [gross gaming revenue] trends in Macau, a gaming/travel dependent market that experienced the COVID-19 downturn first and should experience a bounce/recovery earlier, at least in relation to potential recoveries in U.S. regional gaming, Las Vegas Strip, and U.S. business travel lodging markets,” Greff added.
Piper Sandler’s Craig Johnson, on the other hand, likes MGM Resorts (NYSE: MGM) now.
While MGM shares plunged late last week after the casino operator reported weaker-than-expected Q1 results, Johnson says the technical picture is worth a look.
“When I look at a chart like MGM, there’s no doubt that… we got to decide when we want to hold them and when we want to fold them. And when I look at this chart, the way that we recovered off the lows, we started a nice upward trending price channel and we’re making a nice series of higher highs and higher lows,” Johnson said.
“A lot of the bad news has already been discounted into these stocks and they’re well off their highs,” Johnson said. “And [MGM] is not that I would hold. I think the casinos stocks will do well and MGM would be one that I would be buying.”