Gambling stocks that could be 2023 winners include Wynn Resorts and Caesars Entertainment

The 2023 outlook for the gaming sector has plenty of wild cards in play – including a valuation reset for iGaming and sports betting companies with rising interest rates, high concerns over consumer discretionary spending and risks of cannibalization for some casino operators.

Despite the expectation of a choppy backdrop, investors have plenty of reasons to place new bets.

Deutsche Bank selected Wynn Resorts (WYNN) and Las Vegas Sands (LVS) as its top two picks for 2023 in the games business on profitable growth expectations. Meanwhile, Caesars Entertainment (CZR) and MGM Resorts International (MGM) are also poised for a strong year.

“While there are certainly reasons for caution in the Las Vegas Strip outlook for 2023, we believe the growth drivers (cluster strength/return of international visitors/timing of events) are compelling, on a relative, and we believe CZR and MGM are poised to outperform their peers in national regional markets, given company-specific initiatives and benchmarks.”

Within regional games, analyst Carlo Santarelli believes relative value is key for 2023. Red Rock Resorts (RRR) tops the list due to its organic growth pipeline and continued spending disciplines in a strong local market in Las Vegas. Boyd Gaming (BYD) are also given a legend as a compelling relative way to play the band.

CBRE Equity analyst John DeCree thinks the real story on the Strip is the surge in group and convention business, which was up 32% year-over-year at the end of October and 20% more than in 2019. Total visits increased 7.3% year-over-year to 3.6 million, down 1% from pre-COVID levels. DeCree expects the acceleration in group and convention business to have a material positive impact on EBITDA and is part of CBRE’s bullish thesis on the Las Vegas Strip in general. The most exposed casino stocks in Las Vegas are MGM Resorts (MGM), Caesars Entertainment (CZR), Vici Properties (VICI), golden entertainment (GDEN) and Wynn Resorts (WYNN). Boyd Gaming (BYD) and Red Rock Resorts (RRR) also have indirect exposure to the Strip’s fallout.

Meanwhile, Bank of America is gradually bullish on the Macau sector. Despite the uncertainty over China’s economic reopening and geopolitical wildcards, names exposed to Macau are expected to see another ~25% upside if they fully recover EBITDA and valuations to pre-COVID levels. Las Vegas Sands (LVS), MGM Resorts International (MGM) and Wynn Resorts (WYNN) were all assigned higher price targets by the company on higher multiples with rally potential offset by low visibility on geopolitics and the COVID recovery. Other companies also warmed to Macau shares after China’s State Council announced a new 10-point plan to ease COVID restrictions and senior officials continued to soften the tone on the virus. The new rules include the withdrawal of mass testing, quarantine requirements and reduced use of the health code system. The Macau sector also received a boost recently when current licensees were renewed to remove an overhang in the sector. Melco Resorts & Entertainment (MLCO), SJM Holdings (OTCPK: SJMHF) and Galaxy Entertainment (OTCPK: GXYEF) have captured the most investor attention heading into 2023.

Casino/iGaming/sports betting stocks that have performed best in 2022 and are heading into the new years with some momentum include Las Vegas Sands (LVS) +25.2%, Melco Resorts & Entertainment (MLCO) +11.2%, and Monarch Casino & Resort (MCRI) +9.8%.

Based on the valuation, Century Casinos (CNTY) and Boyd Gaming (BYD) are trading with the lowest forward price-to-earnings ratios.

On a In search of an Alpha Quant rating basestocks with a buy rating include Light & Wonder (LNW), International Gaming Technology (IGT), Monarch Casino & Resort (MCRI), Caesars Entertainment (CZR) and Genius Sports (Genius).