7 Casino Stocks to Play

NEW YORK (TheStreet) -- JPMorgan is bullish on Macau gaming companies and has raised its price target for companies across the board. Specifically, the rating agency is positive on Wynn Resorts (WYNN) and Melco Crown (MPEL).

In June 2011, gaming revenue in Macau soared 52.4% to $2.6 billion from the year-ago month, indicating Chinese tourists' penchant for gambling. Meanwhile, for the first half of the year, Macau's total gaming revenue increased 44.6%.

During May 2011, Nevada, which accounts for almost 60% of U.S. casinos, recorded 16.2% increase in total gambling winnings over the year-ago month. With majority of the states in the U.S. focusing on casinos and racinos, lotteries remain the primary source of gambling revenue, generating $16.3 billion nationwide during fiscal 2010. Las Vegas, the city famed for casinos, recorded revenue growth of 28.9% in May.

A Bloomberg consensus expects these seven stocks from the casino industry to generate attractive returns over the next 12 months. The stocks could gain 5% to 21% with 57% buy ratings and 36% hold recommendations.

7. Melco Crown Entertainment ( MPEL) is a developer, owner and operator of casino gaming and entertainment resorts in Macau. It operates through subsidiary Melco Crown Gaming and is among the six companies licensed to run casinos in Macau. The company owns and operates City of Dreams, Altira Macau, Mocha Clubs and Taipa Square Casino.

Of the 16 analysts covering the stock, 69% recommend a buy and 25% rate a hold. A Bloomberg consensus expects the stock to gain an average 5.1% to $14.34 in the upcoming 12 months.

During 2011 first quarter, Melco reported 42% increase in total revenue from the year-ago period. Net income for the quarter stood at $7.2 million or 1-cent per share, compared to net loss of $12.5 million or 2 cents per share in the first quarter of 2010. The company recently completed the refinancing of its existing credit facilities related to its projects City of Dreams and Altira. These two properties cover almost $1.2 billion consisting of an amortizing term loan facility for the equivalent of $800 million, and a revolving credit facility for the equivalent of $400 million.

Mid-June this year, the company signed a share purchase agreement to acquire 60% equity interest and shareholder loan in the developer of Macau Studio City, a large-scale integrated gaming, retail and entertainment resort to be developed in Macau.

In a separate development, MPEL's efforts in environmental protection have been recognized by multiple awards in 2011. The company's flagship property, City of Dreams, received the Indoor Environmental Quality Certification. The company's three other hotels received the 2010 Macau Green Hotel Award.

6. Ameristar Casinos ( ASCA), a developer, owner and operator of casino entertainment facilities in the local and regional markets, has eight properties in seven markets. The company's operations include a variety of table games, including blackjack, craps, roulette and poker.

Total revenue increased $6.1 million to $308.7 million for the first quarter 2011. Net income during the quarter was seen almost doubling to $21.8 million or 37 cents per share, which compares to $10.7 million or 18 cents per share. Interest payments during the quarter reduced to $25.1 million from $34.4 million in the year-ago quarter. ASCA's earnings improved during the quarter, riding on lower interest expenses and cut back on promotional expenditure.

The company recently announced acquiring most of the stock owned by a charitable foundation formed by its late founder. Capital spending for the second quarter of 2011 is expected to range from $10 to $15 million. Cash dividend per share is pegged at 10.5 cents.

Of the 17 analysts covering the stock, 59% recommend a buy and 35% rate a hold. Analysts polled by Bloomberg expect the stock to gain an average 7.5% to $25.62 in the upcoming 12 months.

5. Wynn Resorts ( WYNN) owns and operates two destination casino resorts. It owns and operates Wynn Las Vegas in Las Vegas, Nevada, and Wynn Macau in the Macau Special Administrative Region of China (Macau).

Net revenue for the first quarter of 2011 increased 38.7% to $1.3 billion from $908.8 million in the year-ago quarter, following a 46.6% increase in revenue from Macau operations and 24% revenue from Las Vegas operations. On a segment basis, casino revenue soared 45.5% to $1 billion, rooms revenue spiked 24.2%, food and beverage revenue increased 15.3%, and entertainment, retail, and other revenue surged 19.4% year-over-year.

In terms of operating metrics, room occupancy for Las Vegas operations stood at 87.9% compared to 89.4% for the quarter ended March 31, 2010. Average daily rate increased to $240 from $203. For Macau, room occupancy was 88.6% from 90.7%, while average daily rate increased 8.9% to $307.

On a non-GAAP basis, net income stood at $173.4 million or $1.38 per share, compared to $33.8 million or 27 cents per share during the first quarter of 2010. Recently, analysts at Brean Murray initiated coverage on the stock with a buy rating and a price target of $175.

Of the 28 analysts covering the stock, 32% recommend a buy and 64% rate a hold. JP Morgan recently raised its price target for the stock to $174 from the earlier $158 indicating an 11% upside from current levels.

4. Penn National Gaming ( PENN), a diversified, multi-jurisdictional owner and manager of gaming and pari-mutuel properties, owns, manages, or has interests in 23 facilities in 16 jurisdictions. The company owns Hollywood Casino Bay St. Louis and Boomtown Biloxi, CRC Holdings, the Bullwhackers properties, among others.

The company is scheduled to release its second quarter earnings on July 21, 2011. The company estimates net revenues to come in at $682.7 million. Meanwhile, adjusted EBITDA is seen at $179.4 million as compared to $142.2 million in year ago quarter. Earnings per share is seen at 47 cents per share as compared to 9 cents per share in year ago quarter. For full year 2011, the company updated revenue guidance to $2.707.5 million from $2,688.3 million provided earlier. Earnings per share estimate was raised to $1.64 from $1.48 earlier.

Moody's Investors Services has raised Penn's outlook from stable to positive, saying the company has outperformed rivals and has improved its credit profile. The rating agency adds that Penn has been improving its operating performance in the prior quarters despite a negative impact on the U.S. gaming sector.

The company recently reached an agreement with the Ohio state government by paying $110 million for a 10-year period, clearing the way for building casinos in Columbus and Toledo. Additionally, early June, Penn acquired M Resort Spa Casino for $230.5 million through an outright purchase of its entire outstanding debt. Located at the southeast corner of Las Vegas Boulevard and St. Rose Parkway, the M Resort Spa Casino is spread over 90 acres.

Of the 22 analysts covering the stock, 77% recommend a buy and 14% suggest a hold. Analysts polled by Bloomberg foresee the stock gaining an average 11.6% to $44.94 in the upcoming 12 months.

3. Boyd Gaming ( BYD), a multi-jurisdictional gaming company, is a diversified operator of 15 wholly owned gaming properties, and has a controlling interest in a limited liability company that operates Borgata Hotel Casino and Spa in New Jersey. The company's gaming operations are divided into four segments: Las Vegas Locals, Downtown Las Vegas, Midwest and South, and Atlantic City.

Net revenue for the first quarter of 2011 was $564.9 million as compared to $415.1 million in the year-ago quarter. Since the recession began, Boyd recorded its first quarterly EBITDA growth of 2% to $89.9 million from the year-ago quarter. Looking ahead, the company anticipates further growth in the same.

Recently, Boyd disclosed that it would be buying a resort on the Mississippi Gulf Coast from Imperial Palace of Mississippi and Key Largo Holdings for $278 million to gain traction in the regional market. The company plans to invest $44 million in capital improvement projects at the IP Casino Resort Spa, after closing the deal by 2011 end. The deal is likely to boost the company's earnings and will be financed from existing revolving credit facilities.

Of the 22 analysts covering the stock, 32% recommend a buy and 59% a hold. Analysts polled by Bloomberg expect the stock to gain an average 14.9% to $10.34 in the upcoming 12 months.

2. MGM Resorts International ( MGM), a holding company, engages in the business of gaming, hospitality and entertainment through its wholly owned subsidiaries. MGM owns and operates gaming, hotel, dining, entertainment, retail and other resorts and amenities.

Total revenue reported for the first quarter of 2011 was $1.5 million, up from $1.4 million in the year-ago quarter. Net loss for the quarter narrowed to $89.9 million, or 18 cents per share, from $96.7 million, or 22 cents per share, in comparable quarter prior year.

Early June, MGM completed its initial public offering of 760 million shares priced at HKD 15.34 per share, the top of its indicative price range, representing 20% of the post issuance base capital stock of MGM China. MGM Resorts also acquired 1% of the overall capital stock of MGM China for HKD15.34 per share or $75 million, becoming the indirect owner of 51% of MGM China.

In a separate development, the company said that it may open as many as 30 hotels in China in the next three-four years to tap the luxury travel segment in the country. A latest update shows that MGM Hospitality has almost nine projects under development in China.

Of the 30 analysts covering the stock, 57% rate a buy and 33% a hold. Analysts polled by Bloomberg expect the stock to gain an average 15.8% to $16.29 in the upcoming 12 months.

1. Las Vegas Sands ( LVS) owns and operates The Venetian Resort Hotel Casino, The Palazzo Resort Hotel Casino and The Sands Expo and Convention Center in Las Vegas, Nevada, and the Sands Macao, The Venetian Macao Resort Hotel, the Four Seasons Hotel Macao, Cotai Strip and the Plaza Casino in Macau.

Net revenue for the first quarter of 2011 increased 58% to $2.1 billion, vs. $1.3 billion in the year-ago quarter, driven by $584.9 million net revenue at Marina Bay Sands, which opened in April 2010, as well as increases at its Macau operations. Casino revenues increased $602.7 million year-over-year, with $464.4 million generated from Marina Bay Sands and $186.8 million from its Macau operations, boosted by Rolling Chip volume at The Venetian Macao and Sands Macao. Subsequently, adjusted net income surged to $299.4 million or 37 cents per share, compared to $53.5 million or 7 cents per share in the first quarter of 2010.

Analysts at Brean Murray recently initiated coverage on the stock with a buy rating and a price target of $53 citing growth in Asia, the Cotai expansion and upside potential in Singapore.

Of the 29 analysts covering the stock, 76% recommend a buy and the rest a hold. There are no sell ratings on the stock. On average, analysts estimate 21.3% upside to $53.32 in value from current levels.

>>To see these stocks in action, visit the 7 Casino Stocks to Play portfolio on Stockpickr.

More from Stocks

Global Stocks Rally as US-China Trade War Thaws; Dow Could Test 25,000

Global Stocks Rally as US-China Trade War Thaws; Dow Could Test 25,000

China Trade Truce, General Electric and Tesla - 5 Things You Must Know

China Trade Truce, General Electric and Tesla - 5 Things You Must Know

The Stock Market Has Every Reason to See a Fresh Rally

The Stock Market Has Every Reason to See a Fresh Rally

18 Top Stocks Hedge Funds Own That Goldman Sachs Thinks Will Keep Outperforming

18 Top Stocks Hedge Funds Own That Goldman Sachs Thinks Will Keep Outperforming

3 Simple Tips on Investing From TheStreet's Jim Cramer

3 Simple Tips on Investing From TheStreet's Jim Cramer