On Monday, the Supreme Court overturned a quarter-century-old law prohibiting people from gambling on sports outside the state of Nevada. Now, states will be allowed to decide for themselves whether to legalize sports betting, thus unlocking what could potentially be a $4 billion market. Needless to say, that’s great news for casino stocks.
Here’s how shares of gaming, racetrack and casino-related companies responded to the historic Supreme Court ruling on Monday:
William Hill plc (WIMHY): +14.3%
Scientific Games (SGMS): +11%
The Stars Group (TSG): +9%
Caesars Entertainment (CZR): +5.4%
Churchill Downs (CHDN): +4.7%
Penn National Gaming (PENN): +4.6%
Boyd Gaming Corp. (BYD): +3.1%
MGM Resorts International (MGM): +1.6%
Those are some pretty hefty one-day returns!
Naturally, some of those casino stocks will come back to Earth a bit in the coming days, as Wall Street has time to digest following its typical overreaction to big, important news. But in the long run, the news is undoubtedly good for the gambling industry as a whole—and sooner than you might expect. New Jersey, New York, Pennsylvania and West Virginia have already passed legislation allowing sports betting. In fact, New Jersey (which brought the case to the Supreme Court) could start taking legal bets as early as this year’s NBA Finals, which are next month.
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Some Vegas-based casino operators, like Las Vegas Sands (LVS), could struggle in the short term amid the sudden influx of competition from other states for sports betters who prior to now could only get their fix through Vegas, sketchy offshore betting sites, or “their guy” (tough day for all those “guys”, by the way). It’s why shares of LVS are actually down since the Supreme Court ruling.
But even the casino stocks that did get a nice bump on Monday aren’t necessarily great investments. Some, like WIMHY and MGM, were bouncing off of multi-month lows. To put it in sports-betting terms, investing in a casino stock that doesn’t have a good chart would be like betting on the Cleveland Browns to win the Super Bowl if they win their first game next year.
So which gambling-related companies do have good stock charts? Here are three casino stocks that stand out:
Casino Stock #1: Scientific Games (SGMS)
SGMS’ good day on Monday was the cherry on top of a very good month. The stock is up 45% since the beginning of April, hitting new 52-week highs above 59 this week. Here’s the chart.
Scientific Games makes slot machines and processes bets for sports-book operators, the latter of which should get a significant boost in the coming years—hence the 11% upmove on Monday.
Casino Stock #2: The Stars Group (TSG)
An online gaming company that’s already growing sales and earnings by double digits, shares of The Stars Group have been on a roll for quite some time. TSG is up more than 50% year-to-date, and 84% over the last 12 months. Sales are expected to increase 11% in 2018, with 7.9% earnings growth. With states like New Jersey and Pennsylvania potentially fast-tracking legal sports betting, chances are those top- and bottom-line estimates will look modest by year’s end.
Casino Stock #3: Churchill Downs (CHDN)
Like TSG, CHDN is a mid-cap stock that’s been steadily on the rise for months. The parent company of Churchill Downs, home of the prestigious Kentucky Derby, it also owns and operates racetracks and casinos in New York, Pennsylvania, Maine, Mississippi and Ohio. Note that two of those states have already approved legal sports betting.
But the real beneficiary here is Churchill Downs’ online gambling business, which should help boost sales, which analysts expect to be down this year, but up 12% next year. Even with slipping sales, the chart still looks like this:
Bottom Line on Casino Stocks
Given the huge run-ups in these stocks on Monday, it makes sense to wait at least a couple days for the inevitable consolidation before you pounce on them. But momentum was already on their side prior to Monday’s ruling, meaning investors were already liking what they were seeing from these three casino stocks before the potentially massive cash windfall legalized sports betting could bring.
That kind of proven track record is why gamblers put their money on teams like the New England Patriots, Golden State Warriors, Alabama football and Duke basketball. And it’s why the casino stocks mentioned above aren’t too much of a gamble.
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