The gambling industry experienced a massive downturn during the COVID-19 pandemic. With social distancing mandates, most casinos had to suspend their operations with a long and painful road ahead to economic recovery.
Sports betting companies were also hurt by the suspension, cancellation, rescheduling, and shortening of sports seasons and sporting events, negatively impacting customers’ use of and expenditure on such platforms.
With the pandemic in the rearview mirror and casinos and sports events operating, the gambling sector is staging a gradual comeback. Despite high inflation tempering discretionary consumer expenditure in the near term, the global gambling industry is expected to reach a revenue of $145.6 billion in 2030, growing at an 11.7% CAGR.
Moreover, the increasing adoption of mobile phones and growing internet penetration should boost the industry’s growth with an increased demand for online gambling.
Investors should bank on fundamentally strong and growing businesses in this space well positioned to make the most of the increased patronage from core customers with adequate disposable incomes. However, they should also chaff out the ones with a bleak outlook amid turbulent macroeconomic conditions.
We think it would be wise to buy Boyd Gaming Corporation (BYD) to capitalize on the industry tailwinds and avoid DraftKings Inc. (DKNG), given its weak fundamentals and decelerating growth.
Stock to Buy:
Boyd Gaming Corporation (BYD)
BYD is a diversified owner of gaming and entertainment properties in the United States. The company operates through three segments: Las Vegas Locals; Downtown Las Vegas; and Midwest & South.
On November 1, BYD announced the completion of its previously announced acquisition of Pala Interactive LLC and its subsidiaries for total net cash consideration of $170 million.
According to Keith Smith, President and CEO of BYD, the acquisition provides the company with the technology, products, and expertise to create a profitable regional online casino business to complement its existing land-based operations and further expand its nationwide customer base.
On October 15, BYD paid its quarterly cash dividend of $0.15 per share. The company pays $0.45 per share annually as a dividend, which translates to a yield of 0.78% at the current price, better than the 4-year average dividend yield of 0.53%. Its dividend payouts have grown at a 35.1% CAGR over the past five years.
For the third quarter of the fiscal year 2022 ended September 30, BYD’s total revenues increased 4.1% year-over-year to $877.26 million. The company’s operating income increased 6.4% year-over-year to $237.46 million. BYD reported adjusted quarterly earnings of $159.2 million and $1.48 per share, up 6.8% and 13.8% year-over-year, respectively.
Analysts expect BYD’s sales and EPS for the fiscal year 2022 to increase 4.4% and 11.9% year-over-year to $3.52 billion and $5.73, respectively. The company has also impressed investors by surpassing consensus EPS estimates in each of the trailing four quarters.
The stock has gained 16.6% over the past year to close the last trading session at $59.17. In terms of its non-GAAP forward Price/Earnings, the stock is currently trading at 10.01x, 17.3% lower than the industry average of 12.1x.
BYD’s sound fundamentals and bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
BYD also has an A grade for Quality and grade B for Growth and Value. It tops the list of 27 stocks in the Entertainment - Casinos/Gambling industry.
In addition to the above, we have also rated BYD for Momentum, Stability, and Sentiment. Click here to access all ratings for BYD.
Stock to Avoid:
DraftKings Inc. (DKNG)
DKNG operates as a digital sports entertainment and gaming company. The company offers multi-channel sports betting and gaming technologies, powering sports and gaming entertainment for operators across 17 countries.
For the third quarter of the fiscal year 2022 ended September 30, DKNG’s adjusted EBITDA came in at negative $264.21 million, while the company reported a loss from operations of $455.03 million. During the same period, its net loss attributable to common stockholders came in at $450.49 million, translating to a loss of $1 per share.
Analysts expect DKNG to report a loss of $0.61 per share during the fourth quarter of the current fiscal year, ending December 2022. The company is expected to keep reporting losses for at least two fiscal years.
The stock has plummeted 6.1% over the past month and 50.9% year-to-date to close the last trading session at $13.64. In terms of forward Price/Sales, DKNG is trading at 2.42, 191.3% higher than the industry average of 0.83.
Unsurprisingly, DKNG has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system.
It also has a grade of F for Stability and Quality and a D for Value, Sentiment, and Quality.
DKNG is ranked last among 27 stocks in the same industry.
Click here to see the additional POWR Ratings for DKNG (Growth and Momentum).
BYD shares were trading at $59.35 per share on Friday afternoon, up $0.18 (+0.30%). Year-to-date, BYD has declined -8.53%, versus a -15.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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