DraftKings Inc. (DKNG) and Boyd Gaming Corporation (BYD) are two prominent players in the gambling industry. DKNG, in Boston, operates as a digital sports entertainment and gaming company offering daily sports, sports betting, and iGaming opportunities. The company also designs, develops, and licenses sports betting and casino gaming platform software for online and retail sportsbook and casino gaming products. It offers them through traditional websites, direct app downloads, and direct-to-consumer digital platforms. In comparison, Las Vegas-based BYD is a multi-jurisdictional gaming company that operates various hotels and casinos across the nation. It also owns and operates a travel agency.

Due to the shutdown of physical casinos and other gambling facilities during the worst of the COVID-19 pandemic, online gambling and iGaming gained huge popularity last year. However, the overall industry witnessed a slowdown. But with the increasing legalization of online gambling and rising foot traffic at brick-and-mortar casinos, the industry is seeing a solid recovery this year. The global casino gambling market is expected to grow at a 3.5% CAGR between 2021 - 2025. So, both DKNG and BYD should benefit.

But while DKNG’s shares have lost 11.8% in price year-to-date, BYD has surged 47.1%. BYD is a clear winner with 6% gains versus DKNG’s 21% returns in terms of their past three months’ performance. But which of these stocks is a better pick now? Let us find out.

Latest Developments

On November 10,  DKNG and Golden Nugget Casino Lake Charles, a new luxurious resort on the Gulf Coast, jointly launched a new retail sportsbook that offers several of America’s most popular leagues across the NFL, NBA, NHL, and NCAA football. Sports bettors in Nevada will be able to place bets online and via their mobile devices on the DraftKings Sportsbook app in permitted parishes. Through safe and responsible gaming (RG) tools, self-imposed player limits, identity verification, and state-of-the-art geolocation, DKNG’s Sportsbook is looking forward to providing a secure and positive gaming experience to its players.

On October 13, BYD and Aristocrat Gaming launched Boyd Pay Wallet, a cashless payment solution for table games in Nevada, powered by Aristocrat's digital wallet technology. A field trial is being conducted at BYD’s Aliante Casino Hotel and Spa in partnership with Genesis Gaming and will integrate Boyd Pay Wallet into BYD’s B Connected app, allowing players to use their mobile device to fund table game wagers without withdrawing cash from an ATM or redeeming tickets and chips at the cage.

Recent Financial Results

DKNG’s revenue for its fiscal third quarter, ended September 30, 2021, increased 60.2% year-over-year to $212.82 million. The company’s loss from operations came in at $546.52 million, up 56.9% from the prior-year period. Its net loss came in at $545.03 million for the quarter, representing a 37.8% rise from its year-ago period. Its adjusted EPS was $0.82, indicating a 43.9% year-over-year improvement. The company had $2.39 billion in cash and cash equivalents as of September 30, 2021.

For its fiscal third quarter, ended September 30, 2021, BYD’s total revenues increased 29.3% year-over-year to $843.06 million. The company’s operating income came in at $223.15 million for the quarter, indicating a 75.6% rise from the prior-year period. While its adjusted net earnings increased 242.9% year-over-year to $149.01 million, its adjusted EPS increased 242.1% year-over-year to $1.30. The company had $970.59 million in cash and cash equivalents as of August 28, 2021.

Past and Expected Financial Performance

DKNG’s revenue and EBITDA have increased 170.5% and 136.3%, respectively, over the past year. And analysts expect DKNG’s EPS to remain negative in the current year and next year. Its revenue is expected to increase 106.6% year-over-year in the current year and 46.2% next year. And its  EPS is expected to decline at a 7% rate per annum over the next five years.

In comparison, BYD’s revenue and EBITDA have grown 31.6% and 117.4%, respectively, over the past year. BYD’s EPS is expected to rise 3433.3% year-over-year in the current year and decline 1.8% next year. Its revenue is expected to grow 53% year-over-year in the current year and 3.6% next year. Analysts expect the stock’s EPS to grow at a 43.9% rate  per annum over the next five years.

Valuation

In terms of non-GAAP P/E, BYD is currently trading at 12.78x, compared to DKNG’s negative 11.28x. And in terms of forward EV/Sales, BYD’s 3.26x compares with DKNG’s 12.95x.

Profitability

BYD’s trailing-12-month revenue is almost 2.7 times higher than  DKNG’s. Also, BYD is more profitable, with a 34.3% EBITDA margin versus DKNG’s negative value.

Moreover, BYD’s ROE, ROA, and ROTC are 34.3%, 7.6%, and 8.5%, respectively, compared with DKNG’s negative values.

POWR Ratings

While BYD has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, DKNG has an overall F grade, equating to Strong Sell. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.  

BYD has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. BYD has an 11.67x forward EV/EBIT, which is 17.9% lower than the 14.20x industry average. DKNG’s F grade for Value reflects its overvaluation. DKNG’s 13.16x forward Price/Sales is 905.2% higher than the 1.31x industry average.

In terms of Quality, BYD has been graded an A, which is consistent with its higher-than-industry profitability ratios. BYD’s 14% trailing-12-month net income margin is 118.7% higher than the 6.4% industry average. In comparison, DKNG’s F grade for Quality is in sync with its negative profit margins.

Of the 30 stocks in the Entertainment - Casinos/Gambling industry, DKNG is ranked #30, while BYD is ranked #5.

Beyond what we have stated above, our POWR Ratings system has also rated BYD and DKNG for Growth, Momentum, Stability, and Sentiment. Get all DKNG ratings here. Also, click here to see the additional POWR Ratings for BYD.

Note that BYD is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

The Winner

Both DKNG and BYD should benefit from the gambling industry’s recovery this year. However, we think its higher profit margins and lower valuation make BYD the better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Entertainment - Casinos/Gambling industry.

DKNG shares were trading at $40.38 per share on Friday afternoon, down $0.33 (-0.81%). Year-to-date, DKNG has declined -13.27%, versus a 26.02% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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