Coronavirus worries cause gaming stocks to tumble on ‘fear of the unknown’

Sunday, March 1, 2020 1:02 AM

Fears over a spread of coronavirus disrupting the U.S. economy sent the nation’s stock markets to their worst week in nearly 12 years.

Gaming industry stocks that were mired in the downward spiral, but analysts said lower share prices could create buying opportunities for savvy investors.

Every publicly-traded company in the gaming industry – major casino operators, regional casino companies, gaming equipment providers, and casino-centric real estate investment trusts – suffered last week as the Dow plunged 12%. The Nasdaq fell 10 percent and the S&P 500 lost 11.5%.

Since Feb. 19, U.S. stocks have lost nearly $3.6 trillion in value.

“I think the fear of the unknown has led investors to drive down U.S. gaming stocks, grouping them within the wider general consumer discretionary names with more coronavirus exposure,” said SunTrust Bank gaming analyst Barry Jonas.

Once the markets settle, Jonas expects a fair number of investors will view the downturn as an opportunity “to buy quality gaming names” at prices far below the companies’ perceived value.

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However, “it’s hard to call when we might see a bottom to this indiscriminate selling,” Jones cautioned.

Like the market as a whole, gaming stocks had their worst weeks in more than a decade.

Share prices of gaming equipment providers, including Scientific Games, International Game Technology and Everi Holdings, watched as stock prices fell 24% on average.

Regional gaming companies saw a range of stock price declines, from Caesars Entertainment’s 12% dip to the 26% drop by Eldorado Resorts and Penn National Gaming.

The three U.S.-based casino operators in Macau – Wynn Resorts, Las Vegas Sands Corp., and MGM Resorts International – saw stock price declines in January and early February during the initial impact of the virus that originated in the Chinese city of Wuhan. Travel to Macau was curtailed and the government ordered a 15-day shutdown of casinos, despite just less than a dozen people in Macau contracting the virus.

Still, shares of Wynn and Las Vegas Sands each fell more than 10% during this past week while MGM Resorts was off more than 21%.

Gaming company leaders, in attempts to reduce concerns, said they haven’t seen an impact on operations from coronavirus, which is now being referred to by its designation as COVID-19.

On Tuesday, Caesars Entertainment CEO Tony Rodio said the company was, “pleased and pleasantly surprised to say that we’ve seen no business impact whatsoever. As a matter of fact, we’re off to a great start in 2020 from our (high end) business from Asia.”

Rodio said Caesars had several “metrics and dashboards” that are monitored on a daily basis to see if there are any hints to a downturn from the virus.

A day later, Eldorado CEO Tom Reeg told analysts, “We’re seeing no current impacts from the virus scare and we feel very good about where we are and where we are headed.”

Reeg also tried to alleviate investment community concerns that stock price declines could disrupt Eldorado’s $17.3 billion buyout of Caesars, which is expected to close in the first half of the year.

MGM Resorts, in the company’s annual report that was filed with the Securities and Exchange Commission on Thursday, said, “The extent to which the coronavirus impacts the company’s results will depend on future developments which are highly uncertain and connote be predicted, including new information which may emerge concerning the severity of the coronavirus and any additional actions taken to contain it from spreading.”

Also Thursday, Penn National CEO Jay Snowden was joined by Barstool Sports founder David Portnoy and CEO Erika Nardini in ringing the Nasdaq closing bell, signifying the companies’ $163 million partnership in sports betting. Portnoy joked that Barstool was there “to save the stock market.”

Penn shares actually closed up Friday by 3%.

“It’s wild how some domestic-focused gaming stocks with limited Asian or even U.S. destination exposure have been beaten up as much if not worse than stocks with direct Asian coronavirus exposure,” Jonas said.

Deutsche Bank gaming analyst Carlo Santarelli thought regional gaming companies would have “the most limited impact” from coronavirus concerns, relative to companies operating casinos in Macau, Singapore, Far East markets.

“This, of course, doesn’t make them defensive in the current market environment,” Santarelli said. “Right now, fundamentals in regional gaming have taken a backseat to negative momentum, and, more importantly, fear.”

The three gaming REITs – Gaming and Leisure Properties, MGM Growth Properties and VICI Properties – declined an average of 12%.

“Even gaming REITS, where we see fairly limited risks to rent payment, have gotten hit this week,” Jonas said.

Howard Stutz is the executive editor of CDC Gaming. He can be reached