The 3 best Casino stocks for the sports betting era

Casino stocks are generally having a decent year in 2023. Two of the largest pure-play exchange traded funds (ETFs) are the VanEck Gaming ETF (NASDAQ:BJK) and the Roundhill Sports Betting & iGaming ETF (NYSEARCA:BETZ). They’re up 3.4% and 13.3% year-to-date (YTD). While that’s less than the 19% return of the S&P 500, the interest in sports betting in America looks to deliver even returns in 2024.

Penn Entertainment (NASDAQ:PENN) is one example of a casino stock that is benefiting from the momentum that exists for casino companies offering their customers sports betting and why investors should be focusing on casino stocks right now. PENN stock is up nearly 34% over the past month on its partnership news with ESPN and Walt Disney (NYSE:DIS).

While PENN has done well in the near term, it hasn’t performed nearly as well over the past five years, gaining just 19%, well below the index’s 5-year return.

I believe there are other casino stocks that will benefit more than Penn in the sports betting era we now find ourselves. Here are my three picks to play the U.S. total addressable market for sports betting, which is expected to hit $37 billion by 2033.

In October, Front Office Sports reported DraftKings (NASDAQ:DKNG) had overtaken FanDuel, its biggest competitor, for the lead in market share for online gambling in the U.S. at 31%, 100 basis points higher. DraftKings has closed the gap in U.S. market share and its momentum is so great that CEO Jason Robins apparently held talks over the summer with 888 Holdings (OTCMKTS:EIHDF) top shareholders about a possible bid for the struggling U.K. casino stock.

“I would have had to at least hear them out,” the Financial Times reported comments in early November from a top 888 shareholder. “888 can help backfill DraftKings with technology and knowhow, and in the long-run DraftKings wants to take over the world.”

Barron’s highlighted on Nov. 24 that 76% of analysts covering DKNG rate it a Buy, the highest level of bullishness since it went public in April 2020. All signs point to more gains in 2024, making it one of the great casino stocks to invest in right now.

Flutter Entertainment (PDYPY)

Flutter Entertainment (OTCMKTS:PDYPY) is the Dublin-based owner of FanDuel. In CEO Peter Jackson’s own words, reported by CNBC on Nov. 9, it has “a billion dollars more in revenue in the U.S. [than DraftKings], so [it’s] very clearly number one.” This was in response to DraftKings assertion that it was the market leader for sports betting in the U.S. Disputed market share aside, Flutter plans to list on the NYSE sometime in Q1 2024. Once done, it will delist from the Euronext Dublin while maintaining a London Stock Exchange listing.

Flutter reported Q3 2023 results on Nov. 9 and its shares fell on disappointing results. While the average monthly players in the quarter rose by 16% to 11.14 million from 9.6 million a year earlier, its total revenue excluding currency only rose 13% year-over-year (YOY). This was due to slower growth from its sports betting revenues, which accounted for 55% of revenue, down from 60% in Q3 2022.

For 2023, it expects U.S. revenue and adjusted EBITDA of $4.7 billion and $180 million, respectively. It expects adjusted EBITDA of 1.44 billion British pounds ($1.82 billion) from its non-U.S. business.

Investors who are risk averse should like Flutter’s profitability relative to DraftKings, and should consider this as one of the best casino stocks to buy right now.

Caesars Entertainment (NASDAQ:CZR), while ostensibly in the business of gambling, is also big on hospitality. On Nov. 17, it announced the second Gordon Ramsay Burger location in Las Vegas would open this summer, making it the famed chef’s seventh restaurant to open in Sin City. There’s plenty to attract non-gamblers to Las Vegas, so Caesar’s various resorts will continue to do very well without gambling, its main attraction.

When it comes to Caesars Sportsbook, it announced on Nov. 3 that it had launched its mobile and desktop apps for online sports wagering in Maine through its partnership with the Houlton Band of Maliseet Indians, the Mi’kmaq Nation and the Penobscot Nation. After the addition of Maine, Caesars Sportsbook is now legal and operating online in 21 states and one Canadian province. Overall, sports wagering of some kind is available in 30 jurisdictions across North America.

In Q3 2023 the company’s digital segment revenues were $215 million, just 3% higher than a year earlier. However, on the bright side, its adjusted EBITDA was $2 million, up considerably from a $38 million loss in Q3 2022.

Overall, Caesars’ total revenue in the third quarter was $2.99 billion, 3.7% higher than a year earlier, with adjusted EBITDA of $1.04 billion, or 35% of revenue. With multiple avenues for profitability, CZR stock appears to be one of the best casino stocks to buy at this time.