Amid the spread of the omicron variant of the coronavirus and a disappointing December jobs report, travel and leisure stocks slumped last week, underscoring the point that investors must be selective in the space this year.
Along those lines, Stifel analyst Steven Wieczynski and team are bullish on some travel and leisure stocks for 2022. While the analysts highlight a preference for some cruise companies amusement park operators, Caesars Entertainment (NASDAQ:CZR) and Wynn Resorts (NASDAQ:WYNN) are among the research firm’s top gaming ideas for this year.
If you want speculation, Macau names have to be at the top of your list. We actually believe the Macau-centric names could represent some of the most compelling ideas given the massive underperformance in 2021 coupled with benign investor expectations,” said Wieczynski and his team of Wynn. “We like the risk/reward current setup in the name at this point.”
Stifel maintains “buy” ratings on both Wynn and Caesars with price targets of $124 and $138, respectively, on the casino stocks. The research firm calls Wynn it’s top large-cap gaming pick for 2022 while Caesars is its preferred regional gaming idea.
Macau Heads Could Finally Ease
Due to China’s zero-tolerance policy on COVID-19 and previous speculation about a tighter regulatory environment in Macau, concessionaires there, including Wynn, don’t lack for critics.
There are, however, some green shoots emerging. The special administrative region’s (SAR) regulatory proposals, while stiffer than before, are being viewed as not too burdensome for operators and consensus is building officials will attack the issue of license renewal prior to the June deadline. That could remove an overhang on Wynn shares.
Additionally, while analysts believe there are some challenges for VIP-dependent operators, including Wynn, by way the junket business being dramatically altered, the Wynn Palace operator can offset weakness in that demographic by shifting to mass and premium mass customers.
“Consistent with what we have heard from other operators, WYNN management indicated the current pacing of visitation back into the market when conditions allow continues to show strong pent-up demand,” adds Wieczynski. “Ultimately, we believe WYNN is well positioned to benefit from improving visitation trends, as we expect its orientation around the VIP and premium mass sourcing segments to allow the business to snap back rather quickly.”
More Support for Caesars
Caesars returned nearly 26 percent last year and it comes into 2022 as one of the most beloved gaming stocks. Caesars is the second-largest operator on the Strip, where it derives approximately 43 percent of its property earnings before interest, taxes, depreciation, and amortization (EBITDA).
The Stifel analysts note that while it will take time for iGaming and online sports betting to reward Caesars investors and that Las Vegas is still waiting on convention traffic to return in earnest, there’s still a lot to like about the stock. Those traits include prodigious free cash flow generation, which could reach or exceed $10 a share.
“As long as the world remains on a trajectory towards a recovery, we believe investors will focus more on what this company will look like 12-24 months down the road,” says Wieczynski. “We continue to believe this is the best management team in gaming and expect them to create significant shareholder value throughout 2021 and into 2022.”
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