• Online Gambling Stocks Canada 2018
• Online Gambling Stocks Tsx

Esports Entertainment Group Inc. (NASDAQ: GMBL) operates as an online gambling company in Canada. It offers bet exchange style wagering, player versus player betting and betting on professional. Gambling Stock to Own, No. 1: Monarch Casino & Resort. Monarch Casino & Resort Inc. (NASDAQ: MCRI) is the first gambling stock on our list, with a VQScore of 4.15. This is not a company that many.

Unless you’re from the Great White North, you might not consider it Canada to be a gambling mecca. But both land-based and online gambling are in full swing, sanctioned by provincial gambling laws in Canada.

The landscape features nearly 100 casinos, and 38,000 VLTs fill in the gaps. Punters can submit their parlays at lottery retailers or online, and bingo, charity gambling, and homegrown online gambling sites for sports and casino gaming are all on the approved list.

Like many countries, Canada’s gambling laws have some clear-cut provisions, as well as some gray areas left to interpretation. So, we’ll do our best to demystify the situation.

We’ll touch on some game-changing judicial decisions too. As Canadian gambling legislation is now in the provinces’ hands, you’ll soon see what each has to offer and the specific Canada gaming laws in play.

If you look at the history books relating to legal gambling expansion throughout Canada, they focus on 1892, 1969, and 1985. But we’re going to add 1976 to the list as well.

• 1892 – The Criminal Code outlaws gambling under the section “Offenses against religion, morals, and public conveniences”
• 1969 – The Criminal Code was initially altered to allow for lotteries that raised funds for worthwhile causes
• 1976 – Sports lotteries were introduced
• 1985 – The federal government turned control over to the provinces for gambling activities, including lotteries and lottery schemes, which cover computer, video devices, slot machines, and horse racing wagering over the phone

The Criminal Code was the be-all, end-all of Canadian gambling legislation for decades. The 1969 move to approve lotteries got the ball rolling in the other direction.

We include 1976 because sports lotteries have been a mainstay in the country since then. Although betting is exclusively parlay-based, players have plenty of access through provincial-governed programs that extend to retail locations and, now, online betting as well.

1985 took Canada’s gambling and online gambling laws to a new level. Although the first gambling venue, Diamond Tooth Gertie’s, popped up in Yukon Territory in 1971, the post-1985 era prompted the casino boom.

Winnipeg’s Crystal Casino was the first government-owned casino, opening its doors in 1991. It didn’t even have its own structure but instead occupied the Fort Garry Hotel’s seventh floor. Manitoba now has five other gambling venues, but the historic Crystal Casino’s reign was short. It closed in 1999.

Online Gambling Laws in Canada

Canada’s online gambling laws are both straightforward and confusing.

On the one hand, online gambling, whether sports betting or casino gaming, is legal as long as the provider is licensed within the country. But on the other hand, Canadians use plenty of offshore online sportsbooks and casinos.

While it’s illegal to operate an online casino in Canada without a license, nothing is spelled out explicitly prohibiting Canadians from using non-licensed services. Many people do, without penalty. No one has been prosecuted for using an out-of-area gambling website.

There are licensed Canadian online gambling sites that operate within the country. Sports Interaction was one of the first and is still going strong. Although it’s categorized as a sportsbook, players can take advantage of casino games as well.

Additionally, Canada is a unique country with its online gambling presence. As the provinces control the gambling and online gambling, most have their own virtual service, like Quebec’s Loto-Quebec or Alberta’s Play Alberta.

Province-run gambling sites include casino gaming, instant lottery, and sports betting. Not all residents are enthused about these services.

The in-region sites tend to have just a small sample of games compared to competitive offshore online casinos. However, new betting opportunities are consistently added, and Loto-Quebec even has some millionaire-makers in its virtual slot banks.

Canadian punters tend to “virtually” leave the country to place bets because Canada’s gambling laws don’t account for straight bets. Since 1976 when sports lotteries emerged, betting has been restricted to parlays.

Aside from Sports Interaction, there are provincial-approved betting services across the country. The national program is called Sport Select, although it’s known by different names, depending on the location.

Sport Select usually operates in conjunction with lottery retailers, and some provinces have extended the service to mobile players. Hence, it falls under both gambling and online gambling legislation in Canada.

Canadians appreciate more than just online sports betting, though. As we mentioned, the majority of provinces host their own online gambling sites featuring casino games, like slots, table games, virtual scratch cards, and lottery-type gaming.

Province-run online betting sites are geofenced. Players can use their mobile devices to play from home or anywhere in the region but will lose connectivity when they cross into another jurisdiction.

• Online casinos and sportsbooks licensed in Canada are legal.
• Sport Select is the national sports betting program, allowing for parlays in retailers and some provinces to provide online access.
• It’s illegal to operate an online casino in Canada without a license, but nothing is spelled out regarding players using outside online betting services.
• Most provinces have dedicated full-service gambling sites for residents but are geofenced, so Canadian punters in other areas can’t access the service – they have to stick to their local website.

Since 1985 when the Canadian government relegated gambling legislation to the individual provinces, there’s been continuous expansion. More than 80 casinos have surfaced and there are now nearly 40,000 VLT machines worth millions to the local economies.

The following are the nine provinces and one territory with casinos and subsequent oversight.

• Gambling oversight: Alberta Gaming, Liquor, and Cannabis Commission (AGLC)
• Commission established: 1996
• Alberta gambling legislation: The Gaming, Liquor, and Cannabis Act
• AGLC website: https://aglc.ca/
• Legal gambling age in Alberta: 18
• Official online gambling site: Play Alberta

Alberta has 28 licensed casinos within the region. Vegas-style casinos are prevalent, totaling 24, and the other four stick to machine-based gambling.

When it comes to VLT gaming in bars and clubs, Alberta takes the nation’s second spot with 6,000 machines at more than 1,200 locations. Quebec is the only province with more, as it totals 12,000. Electronic gaming provides a half-billion dollars in annual revenue to the government.

The province participates in the WCLC, or Western Canada Lottery Corporation but doesn’t allow for online lottery sales. However, Alberta does have a provincial-run online casino, Play Alberta, with slots and lottery-type games. Players can deposit to their betting account with Visa or Mastercard.

• Gambling oversight: British Columbia Lottery Corp.
• British Columbia gambling legislation: Gaming Control Act
• BCLC website: https://www.playnow.com/
• Legal gambling age in British Columbia: 19
• Official online gambling site: Play Now

The British Columbia Lottery Corporation is a three-part service consisting of casino games, lottery, and e-gaming.

Play Now is the official online gambling service, which extends to lottery ticket sales and slots, and other virtual machine-type gaming. Unlike Alberta’s online casino that’s limited to Visa and Mastercard acceptance, Play Now offers a wide range of payment options, including PayPal, Web Cash, and Online Bill Payment.

Land-based gambling in British Columbia features 34 casino venues, but only 18 with traditional table games. There are also three bingo halls, but British Columbia has opted out of the VLT program, so machine gaming isn’t available at bars, taverns, and other liquor-licensed establishments.

• Gambling oversight: Liquor, Gaming, and Cannabis Authority of Manitoba
• Manitoba gambling legislation: The Liquor Gaming and Cannabis Control Act of 2018
• LGCA website: https://lgcamb.ca/
• Legal gambling age in Manitoba: 18
• Official online gambling site: Play Now

While Crystal Casino, the first commercial casino in the area, closed in 1999, five replacements have been added since. Manitoba is also home to Assiniboia Downs’ flat track thoroughbred racing under the Manitoba Horse Racing Commission’s supervision.

The Liquor, Gaming, and Cannabis Authority of Manitoba handles other gambling license applications, including lottery and VLTs. While Manitoba isn’t at the top of the list for VLT revenue, it has nearly 600 licensees, 4,400 machines and generates around a quarter-billion in revenue for the area.

Manitoba is the exception with the Western Canada Lottery Corp, as it also utilizes the Play Now online services for tickets. Both lottery and VLT retailers go through an application process but aren’t charged licensing fees to get started.

• Gambling oversight: New Brunswick Lotteries and Gaming Corp.
• New Brunswick gambling legislation: Control Act of 2008
• NBLGC website: https://www2.gnb.ca/
• Legal gambling age in New Brunswick: 19
• Official online gambling site: Atlantic Lottery

The NBLGC oversees most of New Brunswick authorized gambling activities, except VLTs. VLT supervision is under the Department of Justice, which has recently implemented changes in the program.

VLT machines and retailers have been reduced to a maximum of 2,000 devices spread out amongst 300 locations. New Brunswick’s other land-based gaming includes the Casino New Brunswick with Vegas-style gaming and Grey Rock, which sticks to gambling machines, including electronic table games.

Online gambling is legal in New Brunswick through the Atlantic Lottery site, covering all of the bases from lottery tickets to casino games (slots and tables), bingo, and a link to Pro-Line for sports betting.

• Gambling oversight: Nova Scotia Gaming Corp.
• Nova Scotia gambling legislation: The Gaming Control Act
• NSGC website: https://gamingns.ca/
• Legal gambling age in Nova Scotia: 19
• Official online gambling site: Atlantic Lottery

There’s plenty of bingo action throughout Nova Scotia in addition to the two Casino Nova Scotia locations in Sydney and Halifax. According to reports by the NSGC, the area can more than accommodate the list of venues. Approximately 73% of Nova Scotians participate in at least one betting activity.

All of the proceeds from gambling within the province, which amounted to $136.5 million in the 2019-2020 calendar year, go directly to local programs and services.

Like New Brunswick, Nova Scotia is part of the Atlantic Lottery online gambling programs, so residents also have home and mobile access to slots, lottery tickets, sports betting, etc. Land-based gaming covers the landscape with 600 VLT licensees and 3,000 machines in play.

• Gambling oversight: Ontario Lottery and Gaming Corp.
• Ontario gambling legislation: Ontario Lottery and Gaming Act
• OLG website: https://www.olg.ca/en/home.html
• Legal gambling age in Ontario: 19
• Official online gambling site: Ontario Lottery and Gaming (OLG)

The OLG website is Ontario’s Atlantic Lottery. It’s a full-service online gambling go-to for pretty much anything and everything betting-related in the province. You can buy lottery tickets, bet on sports, and play casino games.

Ontario residents have an edge compared to their provincial neighbors. OLG’s casino not only has more games but uses IGT software. IGT is behind some of the most well-known slot titles, like Cleopatra and LobsterMania (both available on olg.ca). Slots also cover major progressive jackpots like the Power Bucks series seeded at a million.

Along with British Columbia, Ontario said no to VLTs. However, the province is currently home to 28 casinos, including four resort-style properties, like Fallsview Casino-Resort. Casino Woodbine is amid a significant expansion project slated for 2022 completion. And, the casino count will soon hit 29 when the new Pickering Casino-Resort opens its doors.

All but five of Ontario’s casinos are Vegas-style with slots and table games. The other five stick to gambling machines.

• Gambling oversight: Prince Edward Island Lotteries Commission
• Prince Edward Island gambling legislation: Lotteries Commission Act and Gaming Centre Control Regulations of 2005
• PEI gaming regulation website: https://www.princeedwardisland.ca/en/legislation/lotteries-commission-act
• Legal gambling age in Prince Edward Island: 19 for VLTs and casino; 18 for lottery tickets
• Official online gambling site: Atlantic Lottery

With a population of only 157,000, two casinos, a few hundred VLTs, and bingo halls should accommodate Prince Edward Island residents who enjoy gambling activities.

Even the Red Shores Racetrack and Casino, one of two Red Shores properties, is relatively small with about 300 slots. However, it also offers table gaming and a poker room. If the lottery retailers, VLTs, and casinos aren’t enough, though, Prince Edward Island is also part of the Atlantic Lottery program.

Atlantic Lottery gives residents a regionally-regulated, legal Canadian online gambling site for everything from slots to sports.

• Gambling oversight: Loto-Quebec
• Quebec gambling legislation: Société des lotteries du Québec
• Société de lotteries du Québec website: https://societe.lotoquebec.com/en/home
• Legal gambling age in Quebec: 18
• Official online gambling site: Loto-Quebec

If you want to know anything and everything about legal gambling in Quebec, Loto-Quebec is the site to discover. It’s one of the most detailed resources in the country and explicitly spells out what’s available according to Canada gambling laws.

Everything from VLTs to casino gaming to the Loto-Quebec online gambling site runs through the Société de lotteries du Québec.

Loto-Quebec, like the Ontario and Atlantic Lottery sites, covers the gamut. You can play slots, tables, instant lottery, and place sports bets. But if you’re in the mood to take a drive, two gambling halls and four casinos are premier attractions.

• Casino de Montreal
• Casino du Lac-Leamy
• Casino de Charlevoix
• Casino de Mont-Tremblant

The Casino de Montreal is the largest in Canada with more than 3,000 machines, 100 tables, a 25-table poker room, and a VIP gaming area.

As far as other land-based betting opportunities, Quebec takes the top spot with 12,000 VLTs, although it has plans to reduce that number in the near future. Historically, though, the VLTs have contributed a half-billion annually to the provincial economy.

• Gambling oversight: Saskatchewan Liquor and Gaming Authority
• Saskatchewan gambling legislation: The Alcohol and Gaming Regulatory Act
• SLGA website: https://www.slga.com/gaming/
• Legal gambling age in Saskatchewan: 19
• Official online gambling site: n/a

The Saskatchewan Indian Gaming Authority runs seven out of the nine casinos in the region, including the newest, Gold Horse in Lloydminster, which opened in December 2018. The remaining two (Casino Regina and Casino Moose Jaw) are under the Saskatchewan Gaming Authority.

Saskatchewan has an active charity gaming department and one of the more lucrative VLT programs. With 4,200 VLTs in 569 locations, it’s easy to see how they could contribute more than $155 million annually to the province.

A lottery is in full swing with Sask Lotteries, which also links to Sport Select for parlays. However, the lottery is a retailer-only service. You can’t buy tickets or play casino games on the Sask Lottery website like you can in Quebec or Ontario.

• Gambling oversight: Yukon Lottery Corp
• Yukon gambling legislation: n/a
• Lotteries Yukon website: https://lotteriesyukon.com/en/programs
• Legal gambling age in Yukon: 19
• Official online gambling site: n/a

There’s not a whole lot happening gambling-wise in the Yukon Territory. But we’d be remiss if we left it off the list as it’s home to Canada’s first casino.

Diamond Tooth Gertie’s was opened by the Klondike Visitors Association in 1971 and has done its job to attract visitors to the area. With just 64 slots and some table games, you wouldn’t compare it to a venue like Casino de Montreal, but you don’t need to, as it’s one-of-a-kind.

While Yukon Territory has a small lottery program with 43 retailers, there’s no VLT program. So, Gertie’s is the go-to for gambling machines.

Canada’s online gambling laws provide for casino gaming, iLottery, and parlay-based sports betting. But the question is, what’s off the list?

The answer is straight bets and other sports wagering. Canada has noticed what’s happened in the US after PASPA (the Professional Amateur Sports Protection Act) was overturned.

As neighboring states are going all-in with sportsbooks and mobile betting, it’s time for the Great White North to get competitive.

Single-game sports betting has been a hot topic for years in Canada. Licensed sportsbooks and online bookmakers have been pushing for another modification to the 1892 Criminal Code for quite some time.

But the United States’ status change might be enough to alter legislation on a national level soon.

Interesting Facts about Gambling in Canada

Gambling and online gambling laws in Canada provide a combination of white-listed activities and those in the gray area, like online gambling offered through off-shore operators. That leaves residents and visitors with questions, as things can change as soon as you cross from one province into another.

So, we’ve got a few notable gambling-related items that you may find useful in addition to the detailed province-by-province breakdown above.

The legal gambling age in Canada varies from province to province

While the minimum age doesn’t swing wildly, some areas allow players 18 and over, while others require 19.

Current sports betting legislation in Canada is for parlay-based betting only

One of the contention points regarding legal sports betting is that it could encourage teams or players to cheat. With parlay bets, it’s less likely that someone would throw a game.

The Mohawk Territory Kahnawake Gaming Commission isn’t just behind the Canadian-licensed Sports Interaction site

The Kahnawake Gaming Commission was one of the first official regulators of online gaming, starting in 1996. Its client list has dwindled over the years, but it still maintains 21 active licensees.

Canadians aren’t charged taxes on winnings

The no-tax gambling law in Canada applies to both land-based and online gambling and the lottery.

VLTs are responsible for nearly a quarter of all gambling industry income in Canada?

Even without VLTs in Ontario or British Columbia, they’re behind billions in local governments’ annual revenue.

A new casino is opening in Ontario in 2021

The Pickering Resort-Casino was slated for a 2020 opening, but the COVID-19 pandemic slightly postponed the big reveal. Canadians will soon have access to more than 2,000 slots, 167 live dealer stadium game terminals, and 100 table game offerings.

Recapping Gambling and Online Gambling Laws in Canada

As you can now see, you’d need an entire book to list what’s on and off in terms of the gambling and online gambling laws in Canada. Each province develops its individual gambling strategy, which typically includes at least a few casinos, sports betting, a lottery, and an online presence.

Canadians aren’t taxed on gambling winnings, which is a win on top of a win. The legal gambling age is either 18 or 19, depending on the region. That requirement sticks with both land-based and online betting.

Some Canadians balk at their homegrown gambling sites, like Play Now or the Atlantic Lottery. But those full-service websites cover the gamut with sports betting, slots, table games, and lottery tickets. Canadian nights can get cold, so it’s always good to have options.

Updated on September 14th, 2020 by Bob Ciura

As the saying goes, the house always wins. Casinos operate strong business models, as casinos earn a virtually guaranteed profit from the sum of the bets they receive. The relatively attractive economics of casinos make the industry worthy of a closer look.

Investors may be particularly intrigued by the earnings growth and dividends of the major casino stocks. The 4 major publicly-traded casino stocks all pay dividends to shareholders, but they are far from the safest dividend stocks around.

If you are looking for a safer basket of dividend growth stocks, consider the Dividend Aristocrats. They are an elite group of 65 stocks in the S&P 500 Index with 25+ years of rising dividends.

You can download an Excel spreadsheet of all 65 Dividend Aristocrats (with important financial metrics such as dividend yields, P/E ratios, and dividend payout ratios) by clicking the link below:

Click here to download your Dividend Aristocrats Excel Spreadsheet List now.

Casinos are not without a fair amount of risk. Casinos are highly vulnerable to recessions, as consumers typically cut back heavily on gaming when the economy enters a downturn. The four major casino stocks saw their earnings collapse during the Great Recession. A similar impact has taken place to start 2020 due to the coronavirus crisis, which has battered the casino industry.

We have analyzed the major casino stocks in the Sure Analysis Research Database, which ranks stocks based upon the combination of their dividend yield, earnings-per-share growth potential and valuation to compute expected total returns. In this article, we will compare the expected 5-year total annual returns of the four major casino stocks.

Table Of Contents

For this article, stocks are ranked in order of least attractive to most attractive. While 5-year expected returns are incorporated in the rankings, we have also utilized a qualitative screen based on balance sheet strength and overall business quality.

You can instantly jump to a particular section of the article using the links below:

Casino Industry Overview

The casino industry is in severe distress right now. The spreading coronavirus and resulting global recession have taken their toll on the casino stocks. The large U.S. casinos are heavily reliant on Macau, the largest gaming market in the world and the only market in China where casinos are legal. As a result, these stocks are very sensitive to any developments that affect the gaming activity in Macau.

This was a significant concern several years ago. In 2014, China initiated an anti-corruption regulatory crackdown, which greatly reduced the gaming activity in the area. Fortunately for the casinos, the downturn lasted for approximately two years and gaming activity in Macau recovered thereafter. Then the gaming activity in Macau faced another headwind, namely the trade war between the U.S. and China.

This headwind lasted for only about a year but now Macau is facing its strongest challenge ever, the outbreak of coronavirus, which has caused a huge hit in the gaming business. Casinos were shut down for an extended period due to the coronavirus. Visa restrictions have also added to the decline in gaming activity in Macau.

As a result, gross gaming revenue in Macau plunged 94.5% in August, compared with the same month last year. Gross gaming revenue in Macau declined 81.6% through the first eight months of 2020. The high sensitivity of casino stocks to all the developments related to China and their pronounced cyclicality means that investors should pick casino stocks carefully.

Top Casino Stock #4: Wynn Resorts (WYNN)

Wynn Resorts owns and operates Wynn Macau and the Wynn Palace in Macau, as well as Wynn Las Vegas and Encore in Las Vegas. Since Wynn Resorts is highly leveraged to the gaming activity in Macau, it saw its earnings collapse and it cut its dividend by 62% in 2015-2016 due to the Macau downturn that was caused by the anti-corruption regulatory crackdown in the area. But as Macau strongly recovered in the last three years, Wynn Resorts returned to growth.

Online Gambling Stocks Canada 2018

Unfortunately, the company is now facing the headwind of coronavirus in all the regions in which it operates. Wynn Resorts reported earnings results for the second quarter on 8/4/2020. Revenue declined 95% year-over-year to $85.7 million, which was $190 million less than expected. The company lost $6.14 per share in the quarter, missing estimates by $1.23. Adjusted property EBITDA was a loss of $322.9 million compared to estimates of a loss of $314 million. This compared unfavorably to adjusted EBITDA of $480.6 million in the second quarter of 2019.

Results for Wynn Resorts were once again severely impacted by the COVID-19 pandemic as properties in Macau were closed for 15 days. Las Vegas operations didn’t open until June 4th.Wynn Palace revenues declined 98.6% as a result. Revenues for Wynn Macau decreased 97.8% while Las Vegas decreased 86% year-over-year. Wynn Resorts suspended its dividend in an effort to conserve capital. Consensus estimates call for a loss of $11.52 per share for 2020.

On the bright side, casinos are gradually reopening, and Wynn Resorts seems to have ample room to grow in the upcoming years thanks to its promising growth pipeline.

Source: Investor Presentation

The company has made progress in the design of Crystal Pavilion in Macau, which will be a major tourist attraction. In addition, Encore Boston Harbor opened in June-2019 and has exhibited strong performance so far so it has promising growth prospects ahead thanks to expected ramp-up in activity.

Moreover, the company has been caught off guard, with total current and long-term debt outstanding of $12.78 billion and cash and cash equivalents of $3.80 billion. Therefore, the stock is carrying an increased amount of risk right now due to its high level of debt.

However, we believe that the coronavirus crisis will not last beyond this year and we view the long-term growth prospects of the company as intact. We expect 4% annual EPS growth through 2025. Using the company’s current assets, return on assets of 5.6% over the last decade and share count, we believe Wynn Resorts has earnings power of $1.89. We will use this figure to calculate fair value and projected return.

Based off of the earnings power estimate for 2020, the stock is currently trading at a P/E ratio of 44, which is higher than its historical average of 30.1. However, the stock traded at abnormally high P/E ratios in some years due to depressed earnings in those years.

For instance, the abnormally rich valuation of the stock during 2015-2017 resulted from the market’s view that the downturn in Macau was temporary. Our target P/E ratio of 18 reflects uncertainty regarding Macau and the coronavirus. If shares reverted to our target P/E by 2025, then valuation would be a 16% headwind to annual returns over this time period.

If the stock reaches our fair valuation level over the next five years, it would reduce shareholder returns by 16%, effectively wiping out earnings growth and dividends over that time period. The stock is markedly volatile due to its high debt load, which is an added risk factor.

As a result, only those who can stomach extreme stock price volatility and have confidence in the ability of Wynn Resorts to navigate through the current crisis should consider buying the stock.

Top Casino Stock #3: MGM Resorts (MGM)

Online Gambling Stocks Tsx

MGM Resorts owns and operates casinos, hotels and conference halls in the U.S. and China. The company has the least exposure to Macau in this group of stocks. As a result, it suffered much less than its peers from the trade war between the U.S. and China and the protests of people in Macau a few months ago.

However, the company is highly exposed to the outbreak of coronavirus, just like its peers. Due to the rapid spread of the coronavirus, MGM Resorts suspended all its casino operations in Las Vegas on March 16th and did not accept hotel reservations for the dates prior to May 1st. The company also closed its casino in Maryland.

In late July, MGM Resorts reported (7/30/20) financial results for the second quarter of fiscal 2020. The company began reopening its U.S.properties in the quarter but its revenue plunged -91% over last year’s quarter due to the suspension of the operations of the company in the U.S. and a collapse in gaming revenues in Macau caused by travel restrictions and social distancing.

Source: Investor Presentation

As a result, MGM Resorts switched from a profit of $0.23 per share in last year’s quarter to an adjusted loss of -$1.52 per share.

Due to the unprecedented downturn that has resulted from the pandemic, MGM Resorts cut its dividend by 98% in April. Moreover, in May, it issued $750 million of 5-year bonds at 6.750%. The high interest rate reflects the desperation of the company for funds and the high debt load of the company. Net debt is $20.0 billion, which is nearly twice the current market cap of the stock.

On the positive side, on August 20th, 2020, IAC (IAC) reported a 12% stake in MGM Resorts for approximately $1 billion. IAC has a portfolio of brands and digital expertise, which is expected to help MGM Resorts leverage its digital assets. IAC will join the Board of Directors of MGM Resorts. The stock jumped 12% on the announcement.

Nevertheless, due to the headwind of coronavirus, along with a huge debt load, shareholders should not expect a material boost in dividends and share repurchases for the foreseeable future. That said, the company has a positive long-term outlook for conventions and sports betting in the domestic market, as well as the ramp-up of the recently-built MGM Cotai resort, MGM Springfield, and Park MGM.

As soon as the coronavirus crisis comes to an end, MGM Resorts will benefit from these growth drivers. The company will also enhance its earnings growth via its initiative “MGM 2020”, which aims to expand margins by reducing operating costs and enhancing the efficiency of the company.

Due to the headwind from coronavirus, we expect MGM Resorts to report a net loss in 2020. Earnings-per-share are expected to gradually turn positive, with expected annual growth of 5% through 2025. After the massive dividend reduction, returns from dividends will be negligible until the full dividend is restored. Finally, a contracting valuation multiple could be an additional headwind for shareholders. Overall, we expect negative total returns in the mid-single-digits over the next five years.

Top Casino Stock #2: Melco Resorts (MLCO)

Melco Resorts owns and operates casino gaming and entertainment casino resort facilities in Asia. As Melco Resorts is the most leveraged to the gaming activity in Macau in this group of stocks, it is the most vulnerable company to the downturn in the area due to the outbreak of coronavirus.

Melco Resorts will greatly benefit as the US slowly returns to a more ‘normal’ level of activity as COVID-19 fears and cases hopefully decline. A COVID-19 vaccine would likely be a major boost for the company.

In 2019, Melco Resorts grew its revenue 11% and its earnings per share 15%, primarily thanks to its strong performance in the mass market table gaming activity. But conditions have predictably reversed, with second-quarter revenue declining 88% and adjusted property EBITDA declining to a loss of $156.3 million.

Source: Investor Presentation

As soon as the effect of coronavirus begins to fade, the company has promising growth prospects ahead. It will benefit from the ramp-up of activity in its Morpheus Resort, which opened in mid-2018, and attract an increasing number of visitors in Cotai thanks to improvements in mass transportation.

Melco Resorts is also expanding its City of Dreams in Macau and is taking steps to open an integrated resort in Yokohama, Japan. All these initiatives are likely to be significant growth drivers as soon as Macau returns to normal.

On the other hand, due to its extreme leverage to gaming activity in Macau, the stock is highly vulnerable to any negative development related to coronavirus. Therefore, despite the promising growth prospects, we hold modest expectations for Melco, due to its extreme leverage to the activity in Macau.

It is worth noting that the gaming activity in the area was facing another headwind, protests from civilians, before the outbreak of coronavirus. Overall, we expect 2% average annual growth in earnings per share over the next five years.

The company is expected to post a significant loss for 2020. Earnings-per-share are expected to recover to $0.11 in 2021 and $1.08 in 2022. In a normalized economic backdrop, this would mean the stock trades for a P/E ratio of approximately 18, based on 2022 earnings. We view the stock as fairly valued.

Therefore, shareholder returns will be fueled by earnings-per-share growth. The stock had a 4%+ yield recently, but the company has suspended its dividend for the foreseeable future in an effort to preserve cash. Therefore, total returns are expected at just ~2% per year until the dividend is restored.

Given its healthy balance sheet, the company is likely to resume paying dividends once the coronavirus crisis ends. On the other hand, income-oriented investors should remain cautious, as the company is highly vulnerable to economic downturns and is very sensitive to any casino-related policy change in China and the ongoing coronavirus crisis.

Top Casino Stock #1: Las Vegas Sands (LVS)

Las Vegas Sands is a leading developer and operator of integrated resorts in the U.S. and Asia. Due to the outbreak of coronavirus, Las Vegas Sands is facing strong headwinds in Macau and in the U.S. As mentioned above, gaming activity has collapsed in Macau. In addition, due to the propagation of the virus in the U.S., all the casinos in Las Vegas were closed for a considerable period. As a result, Las Vegas Sands will incur a significant hit to its earnings this year.

On the other hand, beyond this year, Las Vegas Sands has promising growth prospects ahead. As Japan legalized casino gambling three years ago, Las Vegas Sands has announced that it intends to open integrated resorts in Tokyo and Yokohama. The company is the favorite bidder in this contest, which is expected to be a significant growth driver, though it will take a few years until the company earns a license and builds its new properties in Japan.

Not only do we see potential for strong earnings growth along with a high dividend yield for this stock, Las Vegas Sands also earns the top ranking because of its strong balance sheet and healthy liquidity.

Source: Investor Presentation

Furthermore, Las Vegan Sands continues to pursue growth by expanding and upgrading its Macau properties. The company launched Four Seasons Tower Suites Macao last year and it expects to perform its grand opening this year while it also expects to launch the Londoner Macao within 2020-2021 and expand Marina Bay Sands in Singapore.

In addition, Las Vegas Sands will benefit from the debut of the light rail system connecting Macau to the entire China rail network. This project will significantly increase the traffic to the casinos in Macau. Thanks to all these growth drivers and given the suppressed earnings expected this year, we expect the company to grow its earnings per share by about 4% per year over the next five years.

Las Vegas Sands stock previously offered a hefty dividend of $3.08 per share annualized, but the company suspended its dividend in 2020 amid the coronavirus pandemic. If the company were to reinstate its dividend at the same level, shares would yield nearly 6% at the current stock price.

The company is expected to see earnings dry up in 2020; our estimate of its full earnings power in a normal economy is annual earnings-per-share of $3.20. Based on this, the stock has a price-to-earnings ratio of 16.6, which is lower than our fair value estimate of around 17.0. Therefore, we see Las Vegas Sands stock as the only undervalued casino stock.

We also believe Las Vegas Sands has the strongest balance sheet. This means it is likely that the company will easily navigate through the ongoing coronavirus crisis and will enjoy a strong recovery whenever the headwind disappears from the horizon.

Final Thoughts

Gaming activity in Macau enjoyed a strong recovery from 2017-2019. But the coronavirus pandemic brought the recovery to a halt. Macau is now facing another severe downturn, due to the outbreak. The same is true for the U.S. as well, as the coronavirus crisis has resulted in weak demand. As a result, all the above casino stocks are going through a fierce downturn right now.

Melco Resorts seems the least attractive choice whereas Las Vegas Sands has by far the most attractive risk/reward profile. Wynn Resorts and MGM Resorts offer a lower expected return than Las Vegas Sands. Additionally, we prefer Las Vegan Sands for its stronger balance sheet, which is paramount during severe downturns.

While we expect the coronavirus crisis to end later this year, no one is absolutely sure when this crisis will end. To provide a perspective for the severity of the downturn, all the U.S. casino companies asked Congress for emergency financial help, as several industries have been impacted by coronavirus. Certain gaming regions like Las Vegas are preparing to reopen, which would be a major positive step for the casinos.

That said, casino operators will likely see profits evaporate and report significant losses, at least for one quarter but potentially for 2020. There is also the potential for further dividend cuts or suspensions across the industry, if the crisis continues for the remainder of 2020.

It is thus critical for investors to make sure that their companies can easily endure a prolonged crisis without being devastated. Therefore, the superior balance sheet of Las Vegas Sands is a crucial parameter and helps explain the fact that the market has punished Las Vegas Sands much less than its peers in the ongoing downturn.