The travel and leisure industry was bludgeoned by the coronavirus pandemic this year, but some of the related equities are in the midst of multi-month rallies with gaming stocks leading the way.
Some market observers are wagering gaming stocks, which are already topping cruise operators and hotel equities, will continue doing so in 2021 with names such as Caesars Entertainment (NASDAQ: CZR) and Wynn Resorts (NASDAQ:WYNN) best positioned to capitalize on COVID-19 vaccines coming to market and pent-up demand trends.
Some analysts are more bullish on leisure than corporate travel, the latter of which is a major contributor to revenue on the Las Vegas Strip, underscoring the point that while folks still want to go to casinos, investors may want to lean toward operators with deep regional portfolios or Macau exposure.
We don’t think Covid has created any meaningful structural headwinds to people’s willingness to go to casinos,” said Morgan Stanley gaming analyst Thomas Allen in an interview with Barron’s.
The Barron’s piece features a list of six travel and leisure stocks that could prove to be solid 2021 plays for investors. That group is comprised of cruise names, hoteliers, timeshare companies and two gaming stocks — Caesars and Wynn.
Calling on Caesars in 2021
Already a Wall Street favorite and higher by 1,160 percent from its March lows, Caesars could be poised for bigger things in 2021, particularly if the new management team delivers on the $500 million in cost efficiencies promised when the company formerly known as Eldorado Resorts acquired the gaming outfit for $17.3 billion earlier this year.
The Reno-based company is the second-largest operator on the Strip behind MGM Resorts International (NYSE:MGM), but the firm behind Caesars Palace is able to offset some of its Las Vegas vulnerabilities via an expansive regional portfolio that provides investors some protection while waiting for Sin City to recover. In the third quarter, about 75 percent of Caesars’ gaming revenue was attributable to properties outside Southern Nevada, according to Barron’s.
Other sources of allure with Caesars stock heading into 2021 include the pending acquisition of William Hill, which will bolster the operator’s iGaming and sports betting exposure.
The buyer is likely to sell the target’s European business, a move that could fetch up to $2 billion. Additionally, Caesars is primed to continue shedding smaller, slower-growing casinos, which will raise cash and lower costs, something Wall Street is eyeing following the Eldorado marriage.
Winning with Wynn
Down 17.63% year-to-date, Wynn is feeling the effects of the pandemic both in Las Vegas and in Macau, its most important market. However, the stock has tailwinds heading into 2021, including a recent streak of breaking even or slightly positive earnings before interest, taxes, depreciation and amortization (EBITDA) on lower revenue in Macau.
The operator’s higher-end clientele is a benefit as Macau and the Strip potentially loosen COVID-19 restrictions in 2021, paving the way for more gamblers to return.
“That means you need fewer visitors to come back. It’s just that you need those visitors to spend more,” said Morgan Stanley’s Allen to Barron’s. “What we are seeing for the regional casinos that have reopened is that there are fewer visitors and people are spending a lot more.”
Wynn stock closed at $114.39 last Friday, but the consensus price target on the name is steadily climbing with at least one analyst saying the stock can get to $130 next year.
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