Digital advancements like virtual reality (VR) and augmented reality (AR) are contributing to the expansion of online casinos, bolstering the gambling sector. Also, gaming industry analysts and observers believe iGaming is ripe for expansion into new jurisdictions. However, stringent regulations continue to interfere with the industry’s prospects.

Therefore, I think while quality gambling stocks Boyd Gaming Corporation (BYD) and Accel Entertainment, Inc. (ACEL) are well positioned to soar and are worth owning, DraftKings Inc. (DKNG) might be best avoided.

Cultural and legalization approval, easy access to online gambling, celebrity endorsements, and corporate sponsorships are helping the US gambling industry grow. Commercial casinos in the United States won over $60 billion, up nearly 14% over 2021 levels from gamblers in 2022, the best year in the industry’s history.

Moreover, the online gambling industry is growing exponentially, with the global online gambling market expected to grow at a CAGR of 11.7% from 2023 to 2030.

Furthermore, while legal iGaming is limited to only five states, efforts to legalize iGaming in the United States are expected to increase, as both retail casinos and independent providers see iGaming as a profitable vertical that is gaining adherents in statehouses.

However, the gambling industry is one of the most heavily regulated sectors, and regulatory pressures could significantly impact the industry.

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. It also runs online casino businesses.

BYD’s trailing-12-month EBIT margin of 28.78% is 267.4% higher than the 7.83% industry average. Its trailing-12-month net income margin of 17.98% is 289.33% higher than the 4.62% industry average.

On February 14, BYD announced a hike in the company’s quarterly dividend to $0.16 per share, from the prior quarterly dividend of $0.15 per share, payable on April 15, 2023.

BYD’s forward annual dividend of $0.64 translates to a yield of 0.98% on the current market price. Its dividend payouts have grown at 30.5% and 32% CAGRs over the past three and five years, respectively.

During the fiscal fourth quarter that ended December 31, 2022, BYD’s total revenues grew 4.9% year-over-year to $922.92 million. Operating income increased 14.2% year-over-year to $247.64 million, while its adjusted EBITDA rose 3.8% from the prior-year quarter to $333.27 million.

Also, BYD’s adjusted earnings rose 17.8% year-over-year to $181.76 million, and adjusted EPS increased 27.4% year-over-year to $1.72.

The consensus EPS estimate of $1.48 for the fiscal first quarter ending March 2023 indicates a 5.5% year-over-year improvement. The consensus revenue estimate of $878.20 million for the current quarter indicates a rise of 2% from the prior-year quarter. Moreover, BYD has surpassed the consensus EPS and revenue estimates in all four trailing quarters, which is impressive.

The stock has gained 21.6% over the past six months to close the last trading session at $65.09.

BYD’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 POWR Ratings are calculated by considering 118 different factors, each factor weighted to an optimal degree.

The stock has an A grade for Quality and a B for Value and Sentiment. Within the Entertainment – Casinos/Gambling industry, it ranked #4 among 31 stocks.

Click here to access additional POWR Ratings for Growth, Stability, and Momentum for BYD.

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.

ACEL’s trailing-12-month levered FCF margin of 7.18% is 372.3% higher than the 1.52% industry average. Its trailing-12-month net income margin of 7.64% is 65.4% higher than the industry average of 4.62%.

ACEL’s total net revenue grew 44.6% year-over-year to $278.07 million in the fiscal fourth quarter that ended December 31, 2022. Its operating income increased 47.1% year-over-year to $25.09 million.

The company’s adjusted EBITDA rose 30.3% year-over-year to $43.30 million, while adjusted net income increased 20.4% year-over-year to $20.82 million.

Analysts expect the company’s EPS and revenue for the current fiscal quarter ending March 2023 to grow 8.8% and 39.2% year-over-year to $0.20 and $274.02 million, respectively.

Shares of ACEL have gained 21.8% year-to-date, closing the last trading session at $9.38.

It is no surprise that ACEL 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, Sentiment, and Quality. It is ranked #2 in the same industry.

To see additional ratings of ACEL for Stability and Momentum, click here.

Stock to Sell:

DraftKings Inc. (DKNG)

DKNG is a digital sports entertainment and gaming company that offers multi-channel sports betting and gaming technologies. The company operates through two segments: Business-to-Consumer and Business-to-Business.

DKNG’s trailing-12-month CAPEX/Sales of 1.45% is 52.8% lower than the 3.06% industry average. Its trailing-12-month asset turnover ratio of 0.55x is 45.8% lower than the industry average of 1.02x.

During the fiscal fourth quarter that ended December 31, 2022, DKNG’s loss from operations amounted to $232.22 million. The company’s net loss attributable to common stockholders and loss per share came in at $242.70 million and $0.53. Also, its adjusted EBITDA stood at negative $49.93 million.

Street expects DKNG’s loss per share to amount $0.78 in the fiscal first quarter ending March 2023.

Over the past year, the stock has lost 22.1% to close the last trading session at $17.90.

DKNG’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system.

The stock also has an F grade for Stability and a D for Value and Quality. It is ranked #29 in the same industry.

Beyond what is stated above, we’ve also rated DKNG for Growth, Momentum, and Sentiment. Get all DKNG ratings here.

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BYD shares were trading at $64.88 per share on Thursday morning, down $0.21 (-0.32%). Year-to-date, BYD has gained 18.98%, versus a 3.00% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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