2 Entertainment Stocks to Buy This December and 1 to Avoid
The entertainment industry continues to grow substantially because of the pandemic-led behavioral shifts. People now spend more time on mobile devices due to changing lifestyles. Casinos and remote gambling platforms are taking advantage of this opportunity to grow their consumer base.
The U.S. commercial casino industry had its best quarter ever, winning more than $15 billion from gamblers in the third quarter of the year. The American Gaming Association, the trade organization for the casino industry, expects the gambling halls to have their best year ever in 2022.
Dmytro Kryvorchuk, Sales Team Lead at Slotegrator, believes casinos in the metaverse and interest in VR products are the two major trends that will be witnessed in the gambling industry over the next five years.
Despite high inflation tempering discretionary consumer expenditure in the near term, the gambling industry is expected to grow at a CAGR of 7.1% to $260.44 billion by 2027. The growth of the market is being driven by increasing betting on esports, the high penetration of smartphones, and the reduced stringency in government regulations.
Given the industry's bright growth prospects, fundamentally strong and quality gambling stocks Boyd Gaming Corporation (BYD) and Accel Entertainment, Inc. (ACEL) might be solid buys this month. However, avoiding fundamentally weak Las Vegas Sands Corp. (LVS) could be wise.
Stocks to Buy:
Boyd Gaming Corporation (BYD)
BYD is a multi-jurisdictional gaming corporation. It operates through three segments, Las Vegas Locals; Downtown Las Vegas; and Midwest & South. The company owns and operates a travel agency and 28 gaming entertainment properties. It also runs online casino businesses.
On November 11, BYD announced that Fremont Hotel and Casino would unveil its all-new Food Hall this December, bringing together six national, regional, and local casual dining brands in a new downtown Las Vegas dining destination. The company aims to expand by integrating six strong brands under one roof.
On November 1, BYD disclosed that it had completed the previously announced acquisition of Pala Interactive LLC and its subsidiaries for a total net cash consideration of $170 million. BYD will benefit from Pala's team assisting in the execution of its online casino gaming strategy, which will complement its current brick-and-mortar operations and grow its client base nationally.
The acquisition of Pala Interactive will give BYD access to the technology, goods, and knowledge needed to establish a successful regional online casino operation in the industry, which presents an excellent growth prospect.
For the fiscal 2022 third quarter ended September 30, 2022, BYD’s revenues grew 4.1% year-over-year to $877.26 million. Its operating income increased 6.4% year-over-year to $237.46 million, while its income before income taxes came in at $203.36 million, a 14.1% rise from the prior-year quarter.
In addition, BYD’s net income rose 13.6% year-over-year to $157 million, while its EPS increased to $1.46, a 20.1% increase from the year-ago value.
BYD’s trailing-12-month gross profit margin of 72.36% is 104.1% higher than the 35.46% industry average. Its trailing-12-month EBITDA margin of 34.29% is 209.2% higher than the 11.09% industry average. Likewise, the stock’s trailing-12-month net income margin of 16.41% is 225.2% higher than the industry average of 5.05%.
Analysts expect the company’s EPS and revenue for the current fiscal year ending December 2022 to increase 12% and 4.4% year-over-year to $5.74 and $3.52 billion, respectively. Furthermore, BYD has surpassed its consensus EPS in all four trailing quarters, which is impressive.
Shares of BYD have gained 4.8% over the past month to close the last trading session at $58.57.
BYD’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Value. Within the Entertainment - Casinos/Gambling industry, it ranked #5 of 27 stocks.
To see additional POWR Ratings for Growth, Stability, Sentiment, and Momentum for BYD, click here.
Accel Entertainment, Inc. (ACEL)
ACEL operates as a distributed gambling operator in the United States and is involved in the setup, maintenance, and management of gaming terminals. It offers licensed establishment partners gaming options that appeal to players patronizing those facilities. ACEL also runs independent ATMs in both gaming and non-gaming venues.
In June, ACEL announced the conclusion of the previously announced agreement to purchase Century Gaming, Inc., one of the top providers of distributed gaming services in the Western United States, for $164.2 million in cash and shares, including Century's working capital.
ACEL will gain from the Century team bringing more than 8,300 gaming terminals and over 900 licensed sites across Montana and Nevada, including bars, taverns, truck stops, and convenience store groupings in both regions.
For the fiscal 2022 third quarter ended September 30, 2022, ACEL’s total revenue grew 38.1% from the year-ago value to $266.97 million, while its operating income increased 24.6% year-over-year to $23.24 million. The company’s adjusted EBITDA came in at $41.13 million, a 9.4% increase year-over-year.
Furthermore, the company’s adjusted net income increased 9.3% year-over-year to $18.93 million.
ACEL’s trailing-12-month EBIT margin of 10.74% is 36.1% higher than the 7.89% industry average. Its trailing-12-month EBITDA margin of 15.38% is 38.7% higher than the 11.09% industry average. Moreover, the stock’s trailing-12-month net income margin of 7.64% is 51.3% higher than the industry average of 5.05%.
The consensus EPS estimate of $0.87 for the fiscal year (ending December 2022) indicates a 14.9% year-over-year improvement. Likewise, the consensus revenue of $967.69 million for the current year estimate indicates a rise of 31.7% from the previous year.
In addition, analysts expect the company’s EPS and revenue for the next fiscal year (ending December 2023) to grow 4% and 9.8% year-over-year to $0.90 and $1.06 billion, respectively. Shares of ACEL have gained 1.8% intra-day to close the last trading session at $8.44.
ACEL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, and Quality. Within the Entertainment - Casinos/Gambling industry, it ranked #2 of 27 stocks.
Click here to see additional ratings of ACEL for Stability, Momentum, and Sentiment.
Stock to Sell:
Las Vegas Sands Corp. (LVS)
LVS is a leading global developer of destination properties, offering services such as lodging, gaming, shopping malls, and other entertainment facilities. It owns and runs integrated resorts throughout Asia and America. Its primary operations and development activities occur in Macao, Singapore, and the United States.
For the third quarter of fiscal 2022 ended September 30, LVS’ mall revenues declined 27.9% from the prior year to $119 million. Its total operating expenses rose 1.6% year-over-year to $1.18 billion. The company reported an operating loss of $177 million, and its net loss came in at $381 million. Also, the company reported a net loss per common share of $0.31 for the quarter.
LVS’ trailing-12-month EBIT margin of negative 18.67% is 336.6% lower than the 7.89% industry average. Its trailing-12-month EBITDA margin of 7.47% is 32.6% lower than the 11.09% industry average. Likewise, its trailing-12-month cash from operations of negative $738 million is 952.2% lower than the $86.60 million industry average.
Analysts expect LVS’ loss per share of $0.08 for the fiscal 2022 fourth quarter, ending December 31, 2022. Moreover, the company is expected to report a loss per share of $1.08 for the current fiscal year. The stock has gained marginally over the past five days to close the last trading session at $47.13.
LVS’ POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system.
The stock has an F grade for Value and a D for Stability. Within the same industry, it ranked #18 of 27 stocks.
Click here to see the additional rating of LVS for Growth, Quality, Sentiment, and Momentum.
LVS shares were trading at $49.48 per share on Thursday morning, up $2.35 (+4.99%). Year-to-date, LVS has gained 31.46%, versus a -15.44% rise in the benchmark S&P 500 index during the same period.