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Gambling Stock Roundup: Macau Gambling Revenues Surge, MGM Announces Strategic Efforts

Zacks Equity Research

It was an eventful week for the Gaming industry as Macau's gaming revenues rose for the 29th consecutive month in December and also registered the highest gain in four months. Moreover, revenues surpassed the analyst’s expectations. In the last week, the industry has increased 8.1% compared with the S&P 500 index’s 2% gain.

Meanwhile, Penn National Gaming, Inc. PENN announced that it has completed acquiring the operations of Margaritaville Resort Casino in Bossier City, LA. Further, MGM Resorts International MGM has announced the “MGM 2020” plan.

Recap of the Week’s Most Important Stories

Macau’s December Gambling Revenues Surge

Macau, which is the world’s largest gambling hub, has impressed investors with better-than-expected revenues. Gambling revenues from Macau increased 16.6% to 26.47 billion patacas ($3.3 billion) in December. In 2018, gambling revenues from Macau improved 14% to 302.85 billion patacas ($37.6 billion).

The year 2018 was a tough one for Gaming industry. In a year’s time, the industry has declined 27.7%, wider than the S&P 500’s fall of 6.1%. Slowdown in China and the trade war between Beijing and Washington has impacted casino operators in Macau in 2018. Further, speculations over another crackdown on capital outflows by China have kept investors on the edge. Flagging China property price has impacted the high-end VIP segment.

Penn National Completes Acquisition of Margaritaville Operations

Penn National Gaming announced that it completed acquiring the operations of Margaritaville Resort Casino in Bossier City, LA. Simultaneously, the company announced that it signed a triple net lease agreement with VICI Properties Inc. Per the deal, VICI is expected to manage the Margaritaville facility.

Notably, the VICI acquisition is part of Penn National’s continual efforts to enhance its shareholder value as these are expected to boost free cash flow. Further, the Zacks Rank #3 (Hold) company expects to see a diversified revenue stream, resulting from these buyouts.

The purchase price of Margaritaville amounted to $115 million, which represented a multiple of roughly 5x of expected trailing 12-month adjusted earnings before interest, taxes, depreciation, amortization (EBITDA), and management fee for the period (ended on Dec 31, 2018). Penn National expects the multiple to be below 4.5x, stemming from operating synergies and cost savings.

The lease agreement with VICI has a preliminary annual rent of $23 million and an initial term of 15 years, with four 5-year renewal options. The rent coverage ratio in the first year after closing is expected to be greater than 2. Meanwhile, the Tenant’s obligations under the lease are guaranteed by Penn National.

MGM Resorts Announces Strategic Initiatives

In an effort to drive growth, MGM Resorts International has announced the “MGM 2020” plan. Apart from focusing on cost-saving initiatives, this plan will ensure improvement of efficiencies. This is a business-optimization plan, which will help the company to drive growth through investment in technology.

The company also implemented a similar plan in 2015, which was very successful. Meanwhile, MGM Resorts has shown impressive growth since the announcement of its Profit Growth Plan in 2015.

The company expects annualized adjusted EBITDA of $300 million, of which $200 million is anticipated to be realized by the end of 2020 and another $100 million by the end of 2021. MGM Resorts stated that $200 million of annualized cost savings will be driven by labor savings, sourcing and revenue optimization.

MGM Resorts has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Caesars Entertainment Becomes NFL Sponsorship

Caesars Entertainment Corporation CZR has been selected by The National Football League (NFL) as the first-ever official casino sponsor of the league.  The company will provide unique experience for NFL fans from 2019 playoffs. To promote Caesars casino properties in the United States and the United Kingdom the company can use NFL trademarks.

Caesars Entertainment  has a Zacks Rank #3.

Price Performance

The following table shows the price movement of the major gambling stocks in the past week and the last six months:

In the last five trading sessions, share price movement of most of the major gambling stocks witnessed an upward trend. Shares of Penn National, Melco Resorts & Entertainment Limited (MLCO), Wynn Resorts, Limited WYNN and Boyd Gaming Corporation BYD were the top gainers during the week.

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Caesars Entertainment Corporation (CZR) : Free Stock Analysis Report
Penn National Gaming, Inc. (PENN) : Free Stock Analysis Report
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MGM Resorts International (MGM) : Free Stock Analysis Report
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