Casino, gaming and sports betting stocks had a wild ride in 2020 with the COVID-19 pandemic and the cancellation of major sports seasons and events. Bank of America analyst Shaun Kelley shared his thoughts on the overall sector with a 2021 outlook called, “From shorts to sports.”
Sports Betting: The key story for sports betting in 2021 could be the additional states that have approved sports betting, adding to the addressable market.
“Sports betting/iGaming could grow +70% in 2021,” said Kelley.
The sports calendar could be a major concern again in 2021. The shifting of sports events into the second half of the year 2020 could create some difficult comps in mature markets like New Jersey, Pennsylvania and Indiana.
States like Michigan and Virginia are expected to launch sports betting in early 2021. States like New York, Ohio, Massachusetts, Maine, Georgia and Connecticut are also ones to watch for possible legalization.
By the end of 2021, Kelley forecasts 27 states will have legal sports betting, representing 49% of the U.S. population. The years 2021 and 2022 could add a combined 24% of the U.S. adult population into the sports betting market versus 10% added in 2018 and 23% added in 2019 and 2020.
Churchill Downs (NASDAQ: CHDN) was initiated with a buy rating by Kelley. The analyst highlights the strong Kentucky Derby brand, accelerating growth profile and the online growth platform of TwinSpires.
Penn National Gaming (NASDAQ: PENN) has a price target of $104 from Kelley.
Casinos/Gaming: The casino sector could be the tale of two halves as Kelley predicts a recovery of the sector with the second half of the year recovering more rapidly. Widespread vaccine distribution could be a catalyst to bring back convention business in the second half of the year.
In Las Vegas, RevPar is estimated to rise 25% to 30% year-over-year, according to Kelley. The estimate calls for RevPar to be 5% to 10% below 2019 revenue. Comparables should be easy to beat in 2021 due to pent-up demand, Kelley said.
Kelley remains neutral on Caesars Entertainment (NASDAQ: CZR) but raised the price target from $65 to $75, citing a faster than expected recovery.
Macau: One of the hardest to predict markets in gaming is Macau, Kelley said. The region has massive potential and massive uncertainty.
Kelley raised price targets on two related Macau names. Wynn Resorts Ltd. (NASDAQ: WYNN) got the biggest price target upgrade, going from $95 to $122. The target on Las Vegas Sands Corp. (NYSE: LVS) rose to $65 from $61.
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