Stock markets defy COVID-19; Red Rock, Penn National Lead Regional Casinos Higher on Vaccine Hopes

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The stock market rose on Wednesday, driven by good news on the coronavirus front. Although the number of COVID-19 cases is still on the rise, a favorable report from a biotechnology company Modern (ARNM -2.60%) has made investors more confident that the final resolution to the pandemic may well be a viable vaccine in the near future. Even with Moderna making it clear that there is a long way to go, market participants have not waited to push stock prices higher. The Dow Jones Industrial Average (^ DJI -0.86%), S&P500 (^GSPC -1.29%)and Nasdaq Compound saw some nice increases on the day.

Today’s stock market

Index

Percentage change

Change of stitches

Dow

+0.85%

+228

S&P500

+0.91%

+29

Nasdaq Compound

+0.59%

+62

Data source: Yahoo! Finance.

In the United States, various states have advanced at different paces in an attempt to reopen their economies. This has been difficult for many businesses that rely on large crowds for their success. Among them, regional casino companies found themselves on the brink of financial collapse at the worst of the pandemic, as many of these companies have much weaker balance sheets and fewer financial resources than the big, top-tier casino operators in the world. gambling meccas like Macau and the Las Vegas Strip. For companies like Penn National Gaming (PENN -3.86%), Red Rock Resorts (RRR -4.38%)and Boyd Gaming (BYD -2.68%)a vaccine may well be the only solution for them to maximize their full profit potential.

Image source: Getty Images.

A big bet pays off

Just watch the how regional casino stocks fared today to understand what is behind all this excitement:

  • Red Rock Resorts, which operates an off-Strip casino in the Las Vegas suburb of Summerlin South, as well as several other smaller casinos in the greater metro area, jumped 19% on the day.
  • Penn National weighed in with an 18% lead on hopes that its vast network of casinos across the Midwest, Northeast, South and West of the United States could all benefit from a COVID-19 solution .
  • Boyd Gaming, with its presence in downtown Las Vegas, as well as the Midwest and South, posted a 17% rise in its stock price.

To be clear, bigger names also had fun, but their payouts weren’t quite as clear cut. MGM Resorts (MGM -2.50%), which has a regional presence as well as premier properties in larger global play areas, saw its stock soar 13%. For the biggest players in the industry, however, only single-digit percentage gains were available to shareholders.

Why Casinos Need a Vaccine More Than Ever

If you’ve ever been to a casino, you can understand the huge impact a pandemic can have on its business model. Casinos pack large numbers of people into small spaces, with every square inch of real estate having a premium. Social distancing is a direct attack on profitability.

It has been possible for casinos to put health protection measures in place. Perspex barriers and greater use of e-gaming options improved things somewhat. But they have also killed some of the excitement of casino games – and it is this excitement that has driven many players to accept odds that guarantee huge profits for Boyd, Penn National, Red Rock and their peers at worldwide.

As long as the coronavirus pandemic lasts, stock market investors can expect huge volatility for companies that have suffered the most from the disease. Amazingly, Penn National is almost back to all-time highs. It’s a sign that casino shareholders might be ahead of themselves in their optimism. But it also shows how important even the hope of a vaccine is to the survival of the industry.

Dan Caplinger has no position in the stocks mentioned. The Motley Fool recommends Boyd Gaming and recommends the following options: Short Calls September 2020 at $26 on Boyd Gaming. The Motley Fool has a disclosure policy.

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