Like most industries, the casino and gambling industry was struck hard last year by the COVID-19 pandemic. However, now that pandemic restrictions are greatly eased, the economic recovery is picking up steam, and people are heading out for vacations, casinos are witnessing a substantial increase in foot traffic. The pent-up demand for gaming and gambling services could significantly boost the revenues of casino operators in the coming months. Consequently, the global gambling market is expected to reach $647.7 billion by 2025, growing at a 7% CAGR.
With most gaming properties now operating at full capacity, customer turnover is expected to surge significantly. Furthermore, the continued evolution of online casinos should boost the growth of casino operators.
Given this backdrop, Wall Street analysts are very bullish on the casino industry’s growth prospects. Analysts expect popular casino stocks Boyd Gaming Corporation (BYD) and International Game Technology PLC (IGT) to rally by more than 50% in the coming months.
Boyd Gaming Corporation (BYD)
BYD is a multi-jurisdictional gaming corporation that operates through three business segments—Las Vegas Locals, Downtown Las Vegas, and Midwest & South. The company operated 28 casino entertainment venues in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio, and Pennsylvania as of March 8, 2021. In addition, it also owns and operates a travel agency.
Last month, BYD and Hawaiian Airlines formed a new strategic collaboration that will allow members of BYD’s award-winning B Connected player loyalty program and the carrier's renowned HawaiianMiles program to earn even more benefits and rewards. Through this partnership, customers will have access to BYD’s exciting reward tiers, exclusive player benefits, and memorable entertainment experiences.
During the first quarter, ended March 31, 2021, BYD’s revenue increased 10.7% year-over-year to $753.31 million. The company reported $193.74 million in operating income, compared to a $137.76 million operating loss in the prior year. Its net income came in at $102.16 million for this period, compared to a $147.56 million net loss in the first quarter of 2020. BYD’s EPS came in at $0.9, versus a $1.30 loss per share in the prior-year period.
A $3.29 consensus EPS estimate for the current year represents a significant improvement year-over-year. Furthermore, BYD has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The $3.09 billion consensus revenue estimate for the current year represents a 41.7% increase from the same period last year. The stock has gained 199.3% over the past year and 64.9% over the past nine months.
Each of the six Wall Street analysts that have provided ratings for the stock rated it Buy. Closing yesterday’s trading session at $51.64, the $79.83 average analyst price target represents a potential 54.6% upside.
BYD's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BYD has also received an A grade for Growth, and a B for Quality and Sentiment. Within the Entertainment - Casinos/Gambling industry, it is ranked #1 of 30 stocks.
To see additional POWR Ratings for Momentum, Stability, and Value for BYD, click here.
International Game Technology PLC (IGT)
IGT is a full-service gaming company that provides players with engaging gaming experiences across all channels and categories—from slot machines and lotteries to sports betting. Lottery management services, online and instant lottery systems, gaming systems, and other commercial services are all part of the company's range of gaming technology products and services. Global Lottery and Global Gaming are the two main business segments through which the company operates.
This month, IGT announced that it had signed a multi-year partnership with Ute Mountain Casino Hotel to grow its sports betting presence in Colorado and Washington to power sports betting at Snoqualmie Casino in Snoqualmie. In addition, IGT will supply its market leading PlaySports platform, self-service PlaySports Kiosks, and turnkey services under the terms of the deal.
Also, this month IGT signed a deal to supply 700 CrystalDual 27 video lottery terminals to the Western Canada Lottery Corporation. As part of the agreement, IGT will launch The Price is Right VLT content in Canada for the first time. This should enable the company to give gamers a fun gaming experience by allowing them to choose from various popular themes on a current platform.
During the first quarter, ended March 31, 2021, IGT’s revenue increased 24.7% year-over-year to $1.01 billion. The company’s net income came in at $92 million, compared to a $248 million net loss in the prior-year period. Its EPS came in at $0.38 for this quarter, versus a $1.28 loss per share of $1.28 in the first quarter of 2020. The company's adjusted EBITDA increased 72.4% from the year-ago value to $450 million over this period.
Its EPS is expected to grow 265.3% year-over-year to $0.81 in the current year. Analysts expect IGT's revenue to increase 23.6% year-over-year to $3.85 billion in its fiscal year 2021. IGT's stock has gained 87.2% over the past year and 84.1% over the past nine months.
All three Wall Street analysts that have provided ratings for the stock, rated it Buy. Their $32 consensus price target represents a 69% potential gain from its $18.94 last closing price.
It is no surprise that IGT has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Growth, Value, and Momentum. In the Entertainment - Casinos/Gambling industry, it is ranked #3 of 30 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the IGT rating for Quality, Stability, and Sentiment here.
BYD shares were trading at $54.00 per share on Tuesday morning, up $2.36 (+4.57%). Year-to-date, BYD has gained 25.82%, versus a 15.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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