With the first quarter earnings season drawing to a close, it’s time to look at some of the gaming stocks that are poised for substantial growth in the near term.
We believe that U.S and Asia are the two key markets for gaming companies. Of these two, currently the U.S market is doing better than the Asian market on an improved economy, better job scenario and lower fuel costs.
However, Macau – a key gambling market in Asia and the only region in China where gambling is legal – is witnessing a downside over the past one year. This is primarily due to an anti-graft corruption campaign carried out by the Chinese government. Companies like Melco Crown Entertainment Limited (NASDAQ:MPEL), Las Vegas Sands Corp (NYSE:LVS) and Wynn Resorts Limited (NASDAQ:WYNN) have been performing unsatisfactorily as Macau is a key operating region for them. In fact, companies whose operations are spread primarily in the domestic market fared better.
Besides, these gambling companies also lack diversification as they focus only on casinos for their revenues. Gaming companies with diversified sources of revenues like hotels, lodging properties, restaurants and horse race tracks have done better.
How to Define Growth Potential?
The Growth Style Score evaluates corporate financial statements and analyzes growth prospects of a company. The financial health and strength of a company is determined by measuring aspects of the income statement, statement of cash flows, and the balance sheet. The metrics that comprise the Growth Style Score include:
• Earnings Growth
• Short-term Cash Flow Growth
• Long-term Cash Flow Growth
• Sales/Assets
• Accruals
4 Gaming Stocks to Buy Now
With the help of our new style score system, we have identified four gaming stocks that have excellent prospects and might prove to be profitable for long-term investors.
To arrive at the best growth picks, we have shortlisted stocks that either have a Zacks Rank #1 (Strong Buy) or #2 (Buy) with a Growth Style Score of ‘A’ or ‘B.’
Las Vegas, NV based, Pinnacle Entertainment Inc (NYSE:PNK) has a Zacks Rank #2 and a Growth Score 'A.' It owns and operates 15 gaming entertainment properties in Colorado, Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada, and Ohio. The company’s projected EPS growth rate is 4.8%, which is better than the industry growth rate. Its current cash flow growth rate and historical cash flow growth rate of 57.9% and 29.6%, respectively, are better than the industry average.
Further, Pinnacle Entertainment has delivered positive surprises in two of the trailing four quarters and has a long-term earnings expected growth rate of 8.74%. Its properties in Baton Rouge, East Chicago, River City and Kansas City are the important growth drivers. The company continues to benefit from the acquisition of Ameristar casinos in 2013.
Based in Las Vegas, NV based, Boyd Gaming Corporation (NYSE:BYD) has a Zacks Rank #2 and a Growth Score 'B. The company’s projected EPS growth rate is significantly higher than the industry growth rate. This gaming company has delivered positive surprises in two of the trailing four quarters with an average positive earnings surprise of 33.81%. The company continues to progress well with its non-gaming amenities across the portfolio, which allows it to further capitalize on growing customer demand in this area.
Based in St. Louis, MO, Isle of Capri Casinos Inc (NASDAQ:ISLE) has a Zacks Rank #1 and a Growth Score 'B. This provider of gaming and related dining, lodging, and entertainment facilities has delivered positive surprises in all the trailing four quarters and has an average positive earnings surprise of 71.5%. Isle of Capri Casinos has a long-term earnings expected growth rate of 4%.
Based in Reno, NV, Monarch Casino & Resort Inc (NASDAQ:MCRI) has a Zacks Rank #2 and a Growth Score 'B. The company’s projected EPS growth rate is 7.2% which is better than the industry growth rate. Its historical cash flow growth rate of 12.6% is better than the industry average.
This owner and operator of casinos and hotels has delivered positive surprises in three of the trailing four quarters and has an average positive earnings surprise of 13.48%. Monarch Casino & Resort has a long-term earnings expected growth rate of 14%. Improved performance at Monarch Casino Black Hawk and Atlantis casino resort are the growth drivers. Meanwhile, the company is working on the expansion of Monarch Black Hawk into a full-scale casino resort in order to capitalize on the Denver metropolitan area's strong economic environment.
Bottom Line
We believe that investing in these companies, which have solid growth potential, should yield strong returns for your portfolio in the short term.