HH The Best Casino Stocks: Where To Place Your Bets

There is an old saying that when it comes to casinos, the house always wins. Most people do not stand a chance to beat casinos on a regular basis, as casinos earn a guaranteed, almost fixed profit from the sum of the bets they receive.

Shareholders are rewarded for this, through earnings growth and dividends. The 4 major publicly-traded casino stocks all pay dividends to shareholders.

On the other hand, casino stocks are highly cyclical. It is not accidental that the four major casino stocks saw their earnings collapse by more than 90% in the Great Recession. Moreover, the four major casino stocks generate a significant portion of their revenues in Macau, which is the largest gaming market in the world and the only market in China where casinos are legal. Consequently, they saw their revenues and their earnings plunge in 2014, when China initiated an anti-corruption regulatory crackdown, which greatly reduced the gaming activity in Macau.

Fortunately for the companies, the gaming activity in Macau has rebounded and has now grown for 22 consecutive months. Nevertheless, the high sensitivity of casino stocks to any policy change in Macau and their pronounced cyclicality means investors should pick casino stocks carefully.

In this article, we will compare the expected 5-year returns of the four biggest casino stocks.

Top Casino Stock #4: MGM Resorts (MGM)

MGM Resorts owns and operates casinos, hotels and conference halls in the U.S. and China. It generates 81% of its revenues in the domestic market and 19% in Macau.

The company has by far the least exposure to Macau in this group of stocks. While it outperformed its peers during the two-year downturn in the region, Macau is currently in recovery, meaning MGM Resorts is poised to benefit much less than its competitors. On the bright side, the company opened its MGM Cotai resort in the first quarter. This resort has ample room to grow in the upcoming years.

MGM Resorts has a poor performance record, as it has posted losses for seven consecutive years in the last decade. Moreover, it has a weak balance sheet, with net debt around $20.0 B, while its interest expense takes up half of its operating income. Consequently, the company is vulnerable to any unforeseen downturn.

MGM Resorts has been rumored to be interested in acquiring Wynn Resorts (WYNN). However, the latter has refuted the rumors. In addition, MGM has a weak balance sheet, with a considerable amount of debt. As a result, this takeover is unlikely.

Thanks to its positive outlook for conventions and sports betting in the domestic market, the sustained recovery in Macau and the ramp-up in the activity in the new-built MGM Cotai resort, the company expects approximate 9% annual revenue growth and 10% annual EBITDA growth until 2020.

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