3 Gaming Stocks to Buy Despite Industry Challenges

Core Insights - The Zacks Gaming industry is facing challenges due to high inflation and interest rate concerns, but positive developments in Macau's gaming revenues and strong demand for sports betting are driving growth [1][3][4][5] Industry Overview - The Zacks Gaming industry encompasses companies that operate integrated casinos, hotels, and entertainment resorts, as well as those providing technology products and services related to gaming [2] Key Themes - High Inflation Impact: Prolonged inflation and the highest U.S. interest rates in 20 years are affecting consumer spending and increasing operational costs for casino operators [3] - Macau Gaming Revenue Recovery: Macau's gross gaming revenues increased by 26% year-over-year in April, reaching approximately 79% of pre-pandemic levels from 2019 [4] - Growth in Sports Betting: The legalization of sports betting across multiple states has significantly contributed to industry growth, with various digital platforms facilitating wagers [5] Industry Performance - The Zacks Gaming industry ranks 165, placing it in the bottom 34% of over 251 Zacks industries, indicating a negative earnings outlook [6] - The industry has underperformed the S&P 500 Index, declining by 5.7% over the past year compared to the S&P 500's increase of 24% [8] Valuation Metrics - The industry has a forward 12-month EV/EBITDA ratio of 10.8, trading at a discount compared to the S&P 500's ratio of 12.57 [9] Notable Companies - Light & Wonder: Experienced a 51.4% increase in shares over the past year, with earnings estimates for 2024 rising by 4.7% to $3.78 [11] - Churchill Downs: Shares increased by 9.4% in the past six months, with 2024 earnings estimates rising by 2.3% to $5.72 [14] - Accel Entertainment: Shares rose by 27.3% in the past year, with anticipated sales growth of 2.6% for 2024 and earnings estimates revised upward by 2.4% [16]