With increasing legalization and digitization, the gambling industry has been recovering steadily from the worst of the COVID-19 effects from last year. According to a Statista report, the casino and online gambling sector worldwide is expected to reach $230.86 billion this year. This is still below the 2019 level of roughly $265 billion, however.

But current COVID-19 related uncertainties continue to impact the gambling sector. According to Federal Reserve Chairman Jerome Powell, the emergence of the omicron variant poses downside risks to the economy. Furthermore, the CEO of gambling group Suncity Group Holdings Ltd, Alvin Chau, was arrested recently, fostering even more investor pessimism about the sector.

Given this backdrop, we think it could be wise to avoid gambling stocks Caesars Entertainment, Inc. (CZR) and Penn National Gaming, Inc. (PENN) now. They have declined significantly in price over the past month and could continue losing in the near term.

Caesars Entertainment, Inc. (CZR)

Gaming and hospitality company CZR, in Las Vegas, currently owns and manages approximately 54 domestic properties across 16 states. The company operates casinos, including poker, keno, race, online sportsbooks; dining venues; hotels; and entertainment venues.

On November 2, CZR and VICI Properties Inc. (VICI) announced that they had completed the sale of Harrah’s Louisiana Downs Casino, Racing & Entertainment to Rubico Acquisition Corp. This could harm the company’s revenue.

CZR’s cash and cash equivalents were $1.07 billion for the period ended September 30, 2021, compared to $1.78 billion for the period ended December 31, 2020. Its net debt came in at $14.1 billion, compared to $13.25 billion for the same period. And its total operating expenses increased 36.8% year-over-year to $2.15 billion for the quarter ended September 30, 2021.

Analysts expect CZR’s EPS to remain negative in its fiscal year 2021. Over the past month, the stock has lost 14.6% in price to close yesterday’s trading session at $93.48.

CZR’s POWR Ratings reflect this bleak outlook. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. It has a D rating for Stability and Sentiment.

CZR is ranked #18 of 31 stocks in the Entertainment - Casinos/Gambling industry. Click here to see additional ratings for CZR (Growth, Value, Momentum, and Quality).

Penn National Gaming, Inc. (PENN)

Together with its subsidiaries, PENN owns and manages gaming and racing properties and operates video gaming terminals. It operates through four segments: Northeast; South; West; and Midwest.  PEEN is headquartered in Wyomissing, Pa.

On November 11, 2021, The Schall Law Firm announced that it was investigating claims on behalf of investors of PENN for alleged violations of the securities laws. The investigation is focused on whether the company issued false and/or misleading statements and/or failed to disclose information pertinent to investors.

PENN’s net income decreased 39% year-over-year to $86.10 million for its fiscal third quarter, ended September 30, 2021. Its net income margin came in at 5.7% compared to 12.5% in the year-ago period. Also, its other expenses were $13.20 million, up 6.5% year-over-year.

Analysts expect PENN’s EPS to decrease 16.4% year-over-year to $0.46 for the quarter ending March 31, 2022. The stock has retreated 27% in price over the past month to close yesterday’s trading session at $52.30.

PENN’s POWR Ratings reflect its bleak prospects. The stock has an F grade for Sentiment and a D grade for Stability. It is ranked #13 in the Gambling industry. Click here to see PENN’s ratings for Growth, Value, Momentum, and Quality as well.

CZR shares were trading at $90.09 per share on Tuesday afternoon, down $3.39 (-3.63%). Year-to-date, CZR has gained 21.30%, versus a 23.91% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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