Boyd, Red Rock JPMorgan Top Gaming Picks for 2022

Posted on: December 16, 2021, 09:47h. 

Last updated on: December 16, 2021, 11:55h.

With value in the group hard to come by, gaming and lodging stocks could offer limited upside in 2022. But a pair of casino operators might be winners in the new year.

gaming equities
Boyd Gaming’s Orleans Casino in Las Vegas. Boyd is among the gaming equities JPMorgan likes for 2022. (Image: Las Vegas Review-Journal)

In a note to clients today, JPMorgan analyst Joseph Greff says gaming and lodging stocks offer investors less upside heading into 2022 than was the case at the start of this year. He added that multiples in the group are starting to look rich.

That sentiment might surprise investors, as gaming equities have been broadly weaker in recent weeks following the emergence of the omicron variant of the coronavirus. Selling pressure on casino stocks is trimming what were previously stellar year-to-date gains in some beloved names. But not necessarily creating much value, according to Greff.

Valuations among casino and lodging stocks are at historical highs relative to 2023 enterprise value/earnings before interest, taxes, depreciation and amortization (EBITDA) forecasts, he adds.

Boyd Could Standout

The analyst acknowledges gaming and lodging stocks “have generally baked in a lot of good news,” and says there is “not much value left to pick through.”

That doesn’t mean the groups are bereft of potential winners. Boyd Gaming (NYSE:BYD) is one of the names JPMorgan recommends for 2022. Boyd is up nearly 41 percent this year but resides 14.48 percent below its 52-week high.

Las Vegas-based Boyd runs 28 gaming venues across 10 states, including 11 in its home city. The operator reported strength across all segments in the third quarter. One of Boyd’s core constituencies is the Las Vegas locals market, which is proving resilient and reduces the operator’s exposure to volatility in travel trends and the pandemic.

Catalysts for Boyd shares include management’s commitment to operating efficiencies, ownership of the bulk of the real estate on which its casinos reside, and its five percent stake in FanDuel — the latter two of which might not be adequately reflected in the share price.

Shares of Boyd trade around $60.50 at this writing. But the consensus price target on the name is $82.82.

Red Rock Highlighted, Too

Red Rock Resorts, Inc. (NASDAQ:RRR) is the other casino stock mentioned by Greff as having a compelling 2022 outlook.

The Station Casinos parent recently wrapped up a Dutch auction that significantly reduced its shares outstanding count.

Looking toward next year, the operator’s leverage is decreasing and the strength of its balance sheet is increasing. That’s prompting some analysts to speculate the company could continue bolstering shareholder rewards or be a player in industry consolidation.

Like Boyd, Red Rock derives a significant portion of its business from Las Vegas locals.

While that demographic is proving sturdy and Red Rock is clearly adept at margin expansion, investors are likely eyeing the next acts. That includes the Durango project, which is slated to break ground in the first quarter of 2022.

The speculation also centers on what the company will do with the influx of cash from selling the Palms earlier this year.