The Zacks Gaming industry is benefiting from improving visitation. The industry is gaining from positive momentum in Macau’s gaming revenues. Moreover, robust demand for sports betting is aiding the industry. The expansion of online betting offerings bodes well. Stocks like DraftKings Inc. DKNG, Wynn Resorts, Limited WYNN and Corsair Gaming, Inc. CRSR are likely to gain traction from this upbeat demand.
The Zacks Gaming industry includes companies, which primarily own and operate integrated casinos, hotels and entertainment resorts. Some industry players also deliver technology products and services across lotteries, electronic gaming machines, sports betting and interactive gaming. Some industry participants develop and operate gaming establishments and associated lodging, restaurant, horse racing and entertainment amenities. Some companies are also involved in developing and selling gaming applications. Additionally, e-sport or sporting event or tournament services, content management system, video software, mobile applications and e-sports data platform solutions are provided.
Key Themes Shaping the Gaming Industry
Visitation Improving: The industry is benefiting from improving visitation. In May, Macau’s gross gaming revenues (GGR) surged 365.9% year over year to MOP$15.57 billion (US$1.93 billion). For the first five months of February GGR is up 172.9% year over year. Notably, companies continue to focus on the level of services and staffing with selective amenities, and enhanced safety and social-distancing protocols in the gaming floor to welcome gamers. However, easing of restrictions and investment will boost gaming revenues in Macau. In the next 10 years, six casinos companies will invest nearly $15 billion.
U.S. Commercial Gaming Revenues Make Record: The gaming industry in the United States continues to perform better-than-expected. Per the American Gaming Association data, revenues from gambling hit a record high of $60.42 billion in 2022. In 2022, sports betting increased 72.7% year over year. In first-quarter of 2023, U.S. commercial gaming revenues reached $16.6 billion. This marks the industry’s eighth straight record-breaking quarter. The U.S. gaming industry will continue to improve.
Sports Betting a Major Driver: The legalization of sports betting in Delaware, Mississippi, New Jersey, New Mexico, West Virginia, Pennsylvania, Rhode Island, Montana, Indiana, Tennessee, Illinois and New Hampshire has been driving growth. Moreover, bettors can place wagers via the digital platforms in Connecticut, Kentucky, Michigan, Massachusetts, Maryland, Minnesota, Missouri, Kansas, Louisiana, Oklahoma, South Carolina, California, Oregon, Arizona, Montana, Colorado and other states. Some popular gaming applications include DraftKings, Barstool, FanDuel, BetMGM, BetRivers, Fox Bet and BetMonarch.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Gaming industry is grouped within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #63, which places it in the top 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since Feb 28, 2023, the industry’s northbound estimate for the current year has increased 181.8%.
We will present a few gaming stocks that one can add to the investment portfolio, given their strong fundamentals. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector and the S&P 500
The Zacks Gaming industry has outpaced the S&P 500 Index and the broader Zacks Consumer Discretionary sector over the past year.
The industry has gained 27.5% over this period compared with the S&P 500 Index’s increase of 4.1% and the sector’s decrease of 4.7%.
One-Year Price Performance
Gaming Industry's Valuation
Since gaming companies are debt-laden, valuing the same based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio makes sense. The industry currently has a forward 12-month EV/EBITDA ratio of 13.41. The space is trading at a discount compared to the market at large, as the forward 12-month EV/EBITDA ratio for the S&P 500 is 19.75.
Over the past five years, the industry has traded as high as 16.43X and as low as 6.74X, with a median of 10.38X, as the chart below shows.
Enterprise Value-to EBITDA Ratio (Past 5 Years)
3 Zacks Gaming Stocks to Watch for
DraftKings: Headquartered in Boston, Massachusetts, DraftKings is benefiting from increasing global demand for online gambling and sports betting. DraftKings is live with mobile sports betting in 20 states that collectively represent approximately 42% of the U.S. population following the launch of its online Sportsbook in Ohio on Jan 1, 2023. The company operates iGaming in five states, representing approximately 11% of the U.S. population.
Shares of this presently Zacks Rank #2 (Buy) player have increased 90.6% in the past year. DKNG’s 2023 earnings and sales are anticipated to increase 40.5% and 43% each, from the respective year-ago reported figures. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: DKNG
Wynn Resorts: Based in Las Vegas, NV, Wynn Resorts, the company, together with its subsidiaries, is a leading developer, owner and operator of casino resorts. The company is benefiting from improved non-gaming revenues and expansion efforts. The company has entered into a definitive agreement with Realty Income Corporation for the sale-leaseback of its real estate at Encore Boston Harbor.
Shares of this presently Zacks Rank #2 player have surged 50.1% in the past year. WYNN’s 2023 earnings and sales are anticipated to increase 138% and 59.9% each from the respective year-ago reported numbers.
Price & Consensus: WYNN
Corsair Gaming: Headquartered in Milpitas, CA, Corsair Gaming is a leading global developer and manufacturer of high-performance gear and technology for gamers, content creators as well as PC fanatics. The company is benefiting from increased focus on creating innovative gaming and streaming gear such as gaming mice, keyboards, headsets and performance controllers.
Shares of this presently Zacks Rank #2 player have increased 22.1% in the past year. In the past 30 days, earnings estimates for 2023 have increased 1% to $5.87. CRSR’s 2023 earnings and sales are anticipated to increase 233.3% and 7% each from the respective year-ago reported numbers.
Price & Consensus: CRSR
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