Posted on: January 29, 2021, 10:45h.
Last updated on: January 29, 2021, 12:11h.
Caesars Entertainment (NASDAQ:CZR) and DraftKings (NASDAQ:DKNG) are two of Loop Capital’s preferred picks among gaming equities this year.
The research firm is also bullish on VICI Properties (NYSE:VICI), the casino real estate investment trust (REIT) that counts Caesars as its largest client.
As we look ahead to the remainder of 2021, we believe stocks that are most levered to the following key themes will outperform: for Gaming operators, online sports betting and a potential V-shaped recovery in Vegas; and asset and tenant diversification for the Gaming REITs,” said Loop in a note to clients today.
The research firm adds that within its coverage universe, DraftKings, Caesars and VICI are the best ways for investors to tap into the aforementioned themes.
Big DraftKings Backer
Loop analyst Daniel Adam is relatively new on the DraftKings scene, initiating coverage of the daily fantasy sports (DFS) provider and sportsbook operator just over two months ago.
However, he’s one of the stock’s biggest bulls. He was the first analyst to place a $100 price target on the name. Not only does that forecast imply upside of 78 percent from where DraftKings stock closed yesterday, but it’s well above the Wall Street consensus around $62.
Loop is undaunted in its assessment of DraftKings, describing the company as a “key beneficiary of the rapidly growing domestic online gaming industry.”
Previously, Adam said the total addressable market (TAM) for iGaming and sports wagering — DraftKings’ marquee operating areas — is $30 billion. That’s on the higher end of the estimates floated by other analysts.
The $100 forecast isn’t impossible to reach, but it’s well beyond DraftKings’ all-time high of $64.19. The company went public last April.
Interesting VICI Call
VICI, like its gaming REIT brethren, was pinched last year by the coronavirus pandemic amid expectations that operator clients would encounter difficulty paying rent. Casinos across the country shuttered for several months in 2020.
However, Loop Capital’s enthusiasm for the Caesars Palace owner isn’t ill-founded. The real estate company collected nearly all of its owed rent during the shutdown and proved adept at working with clients that needed temporary assistance.
Loop highlighted VICI’s tenant diversification, which it has compared to at least one rival. While Caesars is the REIT’s biggest client, it owns the property of assets of gaming venues run by several other operators. By comparison, MGM Growth Properties (NYSE:MGP) counts MGM Resorts as its lone tenant.
An added benefit for investors to mull with VICI is that while the company owns Caesars Palace, it’s not dependent on the Las Vegas Strip for the bulk of its rental income. Rather, the vast majority of its collected rent comes from regional markets that are recovering more rapidly than Sin City.
VICI is up 20.68 percent over the past six months, making it the best-performing gaming REIT in that span.