• The gambling industry continues to see grow, particularly in digital and iGaming, but stock returns have been weak, with many top players facing declines.
• Both Caesars Entertainment and MGM Resorts have been hit hard, with shares of both companies falling by roughly 30% over the last 52 weeks, reflecting challenges in key markets and increased online competition. 
• Of the two, shares of MGM appear more attractive, but both gambling titans stand to benefit from a rebound in the sector. 

The gambling sector has had a turbulent 52 weeks, with some of the stock in the biggest names in the casino industry facing steep declines. However, a few stocks have defied the trend, posting modest gains. Here’s a quick snapshot of how some of the best-known casino stocks have performed over the last year: 

• Flutter Entertainment (FLUT): +14%
• Monarch Casino & Resort (MCRI): +12%
• Boyd Gaming (BYD): +9%
• PENN Entertainment (PENN): +2%
• Churchill Downs (CHDN): -3%
• DraftKings (DKNG) -14%
• Wynn Resorts (WYNN): -15%
• Las Vegas Sands (LVS): -18%
• MGM Resorts (MGM): -27%
• Caesars Entertainment (CZR): -33%

What stands out from the above list is that last summer, Morningstar named MGM Resorts and Caesars Entertainment their “top picks” in the sector. Yet, despite that optimistic outlook, both have ended up among the worst performers. This raises an important question: Is there an opportunity to capitalize on a potential rebound? Today, we take a closer look at the state of the gambling sector and assess whether these two iconic names have been oversold. 

MGM Resorts sees digital traction, but headwinds mount 

MGM Resorts International (MGM), a titan in the hospitality and gaming world, has had a bumpy ride over the past year. Despite its prominence in a growing industry, the stock has taken a 27% hit in the last 52 weeks. And the punishment continued after its most recent earnings release in mid-February. Since then, shares have dropped from about $40 down to $32, keeping investors on edge. 

MGM’s known for its iconic properties along the Las Vegas Strip, as well as its expanding operations in Macau and regional U.S. markets. But it’s been reshaping its business model to adapt to shifting trends in both physical and digital gaming. The company has been focusing on a more asset-light strategy, divesting real estate assets and expanding its BetMGM online gaming platform to capitalize on the growing digital betting market. Despite challenges in the Las Vegas market, MGM has maintained strong growth in its online operations and regional business segments.

In its most recent Q4 earnings report, MGM posted an adjusted EPS of $0.45, surpassing analyst expectations of $0.32. Revenue came in at $4.35 billion, slightly ahead of the $4.27 billion forecast, though it represented a 1% year-over-year decline. One of the big disappointments was net income which fell about 50% year-over-year, driven largely by the absence of one-time gains from property sales in the prior year. The company saw a 15% drop in casino revenues, but its regional and online operations showed resilience, with BetMGM reporting a 15% increase in revenue year-over-year. As evidenced by these figures, the company’s future hinges on the continued expansion of its digital business.

From a valuation perspective, MGM’s stock appears relatively attractive in comparison to its peers. The company’s price-to-earnings (P/E) ratio of 13 is lower than the sector median of 18, suggesting the stock is trading at a discount despite its potential for growth. Its price-to-sales (P/S) ratio of 0.60 and price-to-book (P/B) ratio of 3 are also appealing, with both metrics indicating it is priced more favorably than many competitors. Analysts are generally optimistic about the stock, with 21 out of 24 analysts rating it as “buy” or “overweight” and assigning it an average price target of $49 per share. This implies considerable upside from the current price of $32 pershare.

Considering the strong performance at BetMGM and the potential for a rebound on the Vegas Strip, shares of MGM appear to present a compelling opportunity for investors seeking a value play in the casino/entertainment business.

Amid earnings headwinds, Caesars pins hopes on digital growth

Shares of Caesars Entertainment (CZR) have also been under significant pressure in recent months, mirroring the trajectory of MGM. Over the last 52 weeks, shares of Caesars have plummeted around 33%, and the latest earnings report did little to calm the storm. Since mid-February, shares have fallen sharply from about $40 to just $28, leaving many investors wondering when optimism will return to the stock.

Caesars, known for its expansive portfolio of resorts, casinos and entertainment offerings, has been focusing on improving its digital presence with its iGaming and sports betting platform. But even though its online gaming segment has seen impressive growth, the company has faced challenges in regional markets. There have also been competitive pressures, particularly on the Las Vegas Strip. With a history of strategic acquisitions and a continuing focus on debt reduction, the comapany continues to position itself as a key player in the industry, but it needs to improve its financial position. 

For example, Caesars posted net revenue of $2.8 billion in Q4, but net income amounted to only $11 million. Moreover, adjusted EBITDA fell short of expectations, decreasing slightly to around $880 million.The company’s digital segment remains a bright spot, with iGaming revenue growing over 60% year-over-year. With a focus on reducing leverage and improving cash flow, management at Caesars remains confident about its strategic pivot—expanding its digital business and reducing capital expenditures. However, until the profits materialize, it may be difficult to change the sentiment concerning the company’s underlying shares.

Even after the big sell-off, Caesars’ shares can’t exactly be classified as “cheap.” The company’s forward P/E ratio of 23 is above the sector median of 17, which suggests investors are expecting stronger growth than the company has been delivering. On the other hand, Caesars’ price-to-sales (P/S) ratio of 0.5 and price-to-book (P/B) ratio of 1.4 are both below their sector medians (0.9 and 2.0, respectively), which helps balance the high P/E ratio and makes the stock look slightly more attractive from a valuation perspective. Analysts are generally positive about the stock, with 12 of 17 rating it as a “buy” or “overweight.” Additionally, the average analyst price target of $48 per share is much higher than the current price of around $28. 

While the company’s challenges perhaps justify the pullback, Caesars’ strong position in Las Vegas, its improving digital business and its efforts to reduce debt provide some reason for optimism. For investors who think a recovery is on the horizon in the gambling industry, Caesars may also present an attractive value opportunity—especially if management can deliver on its projections.

Takeaways

Shares of Caesars and MGM have faced turbulence over the past year. Yet while these two giants have been under pressure, the broader gaming sector still holds promise. Analysts continue to eye the industry with optimism, assigning price targets well above where many stocks currently trade. Of the two iconic gambling companies covered in this post, MGM looks like the more attractive option—in large part because of its more reasonable P/E ratio. Adding fuel to the fire, JPMorgan recently raised its price target for MGM to $52 per share and reaffirmed its “outperform” rating. 

Should the gaming sector recover, both MGM and Caesars look primed to capitalize. But for those seeking to spread their risk and play the broader trend, sector-focused exchange-traded funds (ETFs), like the Roundhill Sports Betting & iGaming ETF (BETZ) and the VanEck Gaming ETF (BJK), offer attractive alternatives. While the VanEck ETF has struggled with its exposure to traditional casinos like MGM—down about 8% in the last year—Roundhill, which leans more heavily into digital gambling, has performed better, up around 13%. Whether you’re looking for a traditional play or a bet on the future of online gaming, these ETFs offer diversified access to the sector. 

Andrew Prochnow, Luckbox analyst-at-large, has more than 15 years of experience trading the global financial markets, including 10 years as a professional options trader.