Las Vegas Sands, MGM Could Be 2024 Consumer Cyclical Stars

Posted on: December 21, 2023, 06:05h. 

Last updated on: December 22, 2023, 11:08h.

As highlighted by the 40% returned this year by the S&P 500 Consumer Discretionary Index, consumer cyclical equities, including select gaming stocks, performed well in 2023. Some analysts believe sequels are possible next year.

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The Bellagio on the Las Vegas Strip. Operator MGM, along with other gaming equities, could drive 2024 upside in the consumer cyclical sector. (Image: YouTube)

That could benefit some casino stocks, including Las Vegas Sands (NYSE: LVS) and MGM Resorts International (NYSE: MGM). In a new report, Citi Research highlighted 2024 buy and sell ideas from each of the 11 global industry classification standard (GICS) sectors. On the consumer discretionary side, Sands and MGM made the cut as two of the top five ideas for next year.

LVS and MGM were the only gaming names in that quintet, and no stocks from the industry appeared among the bank’s six names with the worst expected total return (ETR) for 2024. Among consumer services equities, the sub-industry group for casino stocks, there is concern that “the best of fundamental resilience is behind as margins, sales, earnings, cash flow decelerate,” noted Citi. The bank added that 2024 expectations for those factors remain sturdy.

Citi sees 2024 ETR for Sands and MGM of 54% and 44%, ranking the stocks third and fourth, respectively, on the bank’s list of top consumer cyclical ideas for 2024.

Other Gaming Names Could Boost

Heading into year-end, Sands, which is the largest casino operator by market value, has been on the receiving end of a slew of bullish calls, with the sell-side betting the stock’s underperformance this year created a value opportunity.

Analysts also like some other gaming names as potential contributors to the 2024 consumer cyclical sector upside, including those with domestic focus, including Caesars Entertainment (NASDAQ: CZR).

We expect travel and leisure demand to prove relatively resilient overall, but with pockets of varying weakness as consumers become more discerning with their budgets,” said Barclays analyst Brandt Montour in a new report.

Citing Caesars’ sturdy free cash flow and a deleveraging story he described as underappreciated, Montour said the Linq operator is one of his top travel and leisure picks for 2024, adding that the operator’s digital, Las Vegas, and regional casino businesses can each notch growth next year.

Barclays Bullish on Penn, Too

Amid an impressive start for Penn Entertainment’s (NASDAQ: PENN) recently launched ESPN Bet mobile sports wagering application, enthusiasm for that stock is increasing, too.

Following a dismal showing last year, Penn is unlikely to finish 2023 in the green. But the shares are up 12% over the past 90 days, and it’s the casino stock Montour has the strongest conviction on heading into next year. The consensus price target on the stock implies upside of more than 21% from current levels.

“Our favorite gaming name for 2024 is PENN, based on the under-appreciated early success of ESPN BET, and asymmetric risk/reward to PENN equity if even moderate success comes to pass,” concluded the Barclays analyst.