JP Morgan launches gaming sector coverage, touts PENN, Red Rock, Caesars as top picks

JP Morgan initiated coverage of the U.S. gaming sector, naming PENN Entertainment (PENN), Red Rock Resorts (RRR), and Caesars Entertainment (CZR) as its top picks, citing what it called a "high risk, high reward" landscape shaped by macroeconomic headwinds and shifting consumer trends.

“The Gaming sector is rife with risks, but potential rewards are high,” analyst Daniel Politzer wrote in a June 23 note, his first as J.P. Morgan’s lead gaming analyst. The bank rated seven stocks as Overweight and four as Neutral.

Politzer said JP Morgan favors drive-to regional casinos over destination resort properties on the Las Vegas Strip, amid economic uncertainty tied to tariffs, interest rates, and geopolitical tensions.

“We prefer the more stable drive-to regional casinos ... over more discretionary fly-to Las Vegas Strip resort properties, where recent data has been mixed and our 3Q room rate survey screens broadly negative,” he wrote, also citing mixed visitation.

The note emphasized a "relative preference" for regional casinos, followed by digital gaming, Macau, and lastly Strip exposures. Politzer warned that while digital gaming is insulated from macro shocks, it faces “regulatory uncertainty and gaming-tax risk.”

PENN Entertainment earned an Overweight rating, bolstered by a $1 billion pipeline of new projects, a $325 million share repurchase plan - equivalent to roughly 14% of its market cap - and improving trends for ESPN Bet. The company’s over $65 million in market access fees also added to its valuation appeal.

Red Rock Resorts was noted for its improving earnings visibility through 2027, a high-quality asset base in a supply-constrained market, and legislative tailwinds, such as possible tax relief on tipped income.

Caesars Entertainment also received an Overweight rating. The bank projected the operator could generate $3 billion in net cash flow through 2027 - about half of its current market cap - and praised its regional stabilization and digital profitability.

“CZR is the sole omnichannel operator to build a profitable digital business,” Politzer noted.

JPMorgan gave an Overweight rating and “honorable mention” to Sportradar Group (SRAD), highlighting its fixed sports rights and a stable revenue mix with 70% of income locked in. It is considered better positioned in the near term than its peers.

Politzer described the sector’s evolution as “Gaming 2.0,” with traditional land-based operators facing pressure from digital competition and a proliferation of casino-like alternatives such as historical horse racing machines and gray-market skill games. 
“It’s hard not to recognize that the (likely permanent) re-rating of land-based gaming operators these past few years largely reflects market saturation,” he wrote.

JPMorgan observed that most gaming stocks are trading below their three-year cash flow multiples. “Only Boyd Gaming is not trading at a discount,” Politzer said, while PENN, Station Casinos, and Caesars carry “modest” discounts.

The bank expects near-term stock performance to depend on “catalysts, momentum, and intangibles,” while long-term returns will be driven by “capital allocation, asset quality, growth, and earnings visibility.”