Caesars and MGM Expected to Lead Consumer Cyclical Sector in 2024

Posted on: December 21, 2023, 06:05h.

Last updated on: December 21, 2023, 06:05h.

As evidenced by a 40% return on the S&P 500 Consumer Discretionary Index in 2023, consumer cyclical equities, particularly gaming stocks, delivered strong performances. Analysts foresee promising opportunities for 2024.

MGM hackers
Bellagio on the Las Vegas Strip. Operator MGM along with other gaming equities could drive 2024 upside in the consumer cyclical sector. (Image: YouTube)

Las Vegas Sands (NYSE: LVS) and MGM Resorts International (NYSE: MGM) are among the casino stocks poised to benefit from these opportunities. According to a report by Citi Research, Sands and MGM are among the top five buy and sell ideas for 2024 under the consumer discretionary sector.

LVS and MGM were the only gaming names in that quintet and no stocks from the industry appeared among the bank’s six names with the worst expected total return (ETR) for 2022. Among consumer services equities, the sub-industry group for casino stocks, there is concern that “the best of fundamental resilience is behind as margins, sales, earnings, cash flow decelerate,” noted Citi. However, the bank added 2024 expectations for those factors remain sturdy.

Citi sees 2024 ETR for Sands and MGM of 54% and 44%, ranking the stocks third and fourth, respectively, on the bank’s list of top consumer cyclical ideas for 2024.

Other Gaming Names Could Boost Consumer Cyclical Sector

Sands, the largest casino operator by market value, has received bullish calls recently. Similarly, analysts anticipate optimistic contributions from other gaming names, domestic and international, within the consumer cyclical sector.

We expect travel and leisure demand to prove relatively resilient overall, but with pockets of varying weakness as consumers become more discerning with their budgets,” said Barclays analyst Brandt Montour in a new report.

For instance, Barclays analyst Brandt Montour has identified Caesars Entertainment (NASDAQ: CZR) as a top travel and leisure pick for 2024. Montour highlights the company’s digital, Las Vegas and regional casino businesses as key drivers for potential growth next year due to its sturdy free cash flow and underappreciated deleveraging story.

Barclays Bullish on Penn, Too

Penn Entertainment’s (NASDAQ: PENN) recently launched ESPN Bet mobile sports wagering application has spurred enthusiasm for the stock. Despite a difficult 2023, Penn is anticipated to rebound in 2024, with potential upside of more than 21% from current levels, making it a Barclays favorite gaming name for the new year.

“Our favorite gaming name for 2024 is PENN, based on the under-appreciated early success of ESPN BET, and asymmetric risk/reward to PENN equity if even moderate success comes to pass,” concluded the Barclays analyst.

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