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Bet Carefully on Regional Casino Stocks After Their Run-Up, Analyst Says
By: Barron's | January 29, 2021

Regional casino stocks have outperformed during the pandemic. Now one Wall Street analyst has lowered his financial forecasts for a host of them owing to concerns about Covid.

Joseph Greff, a longtime analyst at J.P. Morgan, wrote in a note Friday that these stocks should be bought on pullbacks rather than at current levels.

Greff trimmed his estimates for earnings before interest, taxes, depreciation and amortization, or Ebitda, for the fourth quarter of 2020 and the first half of this year for a host of companies. They include Penn National Gaming (ticker: PENN), Boyd Gaming (BYD), Red Rock Resorts (RRR), Caesars Entertainment (CZR), and Churchill Downs (CHDN).

In lowering his estimates, Greff cited “rising COVID-19 infection rates and the ensuing impact of casino restrictions on regional gaming visitation and spend.”

Many regional casino stocks have delivered strong returns during the pandemic, outperforming those more dependent on markets such as Macau and Las Vegas. Unlike companies that are tethered to, say, Las Vegas and convention business, the regional players rely more on customers who drive to the properties for gambling—and not so much for entertainment, meetings, or conventions.

Penn National Gaming is up around 270% over the past year, helped by its foray into online sports betting and gaming. The rush into online gambling has helped boost the valuations of other regional casino operators as well.

Many of these stocks have shined. Boyd Gaming, for example, is up about 52% over the past year, and Caesars has gained around 17%.

Greff wrote that his fourth-quarter 2020 Ebitda for the regional casino companies that he follows fell by an average of 14%.

He left intact his estimates for the second half of this year and for 2022.

“Similarly, we expect 1Q21 regional results to be similar to December’s and expect 2Q21 to be modestly better than the 1Q21; as such we are lowering our 1H21 estimates,” according to the note.

“We are surprised with the 2021 share price strength, which follows torrid share price performance in the 4Q20,” Greff noted. “And given current valuation levels, we generally think the group is much better to be bought on pullbacks than putting in fresh money at current levels.”

The analyst added that he is sticking with is Overweight ratings on Red Rock Resorts, Boyd Gaming, Caesars Entertainment, Penn National Gaming, and Churchill Downs. For Boyd, the year-end price target increased by $2 to $54; for Casears Entertainment, it went to $89 from $83.

Boyd was at $45 and change Friday morning and Caesars Entertainment was at $70.75.

Greff raised is year-end price target for Penn National Gaming by $18 to $113, compared with $102.45 Friday morning.

He left his price target for Churchill Downs unchanged at $200. It was at $187.40 Friday morning.

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