The Q1 earnings season has begun on an encouraging note with multiple companies reporting better-than-expected earnings with each passing day. In fact, the S&P 500 companies are likely to witness highest quarterly earnings growth rate in seven years.

Per the latest Earnings Outlook, earnings of the S&P 500 members are expected to increase 18.3% and revenues projected to rise 7.7%. With earnings season still at the nascent stage, in this article we will focus on the performance of casino stocks.

Despite the recent market volatility, the U.S gambling industry has rallied 22.5% in the past year, outpacing the S&P 500’s gain of 12.2%. Within the gaming space, the casino market, which is considered one of the largest entertainment markets in the world, is positioned for substantial growth over the long haul.

Casino Market

The bullish trend in gambling industry is expected to continue through 2018 and beyond. According to Research and Markets, the global casino gaming market is anticipated to witness a CAGR of 10.16% in the 2017-2021 period. The stellar rally of casino stocks on the bourses has been supported by strength in domestic market, turnaround in Macau business and overall international interest in gaming space.

Further, lenient government regulations with respect to online casinos have led to a rapid rise of casino operators. Online gambling has been a primary growth driver for the market as a wide range of customers has gained access to such portals. In fact, the scope for the gambling industry has widened as more than 80 countries have legalized online gambling. Europe is considered the world’s largest online gambling market.

Leading casino companies are optimistic about improving tourism in Las Vegas and increasing demand for gaming and leisure. Therefore, they are opting for alternative avenues to expand customer base and business. Additionally, these casinos operators are increasingly making associations with the hospitality sector, setting up luxury hotels and taking initiatives toward improvement of the gaming businesses. Since these non-gaming services generate higher margins, companies are increasingly focusing on alternative streams to drive revenues.

High Expectations From Q1 Earnings Season

Of the 16 Zacks sectors, 14 are anticipated to report earnings growth in Q1. Gaming stocks, which is a part of the Consumer Discretionary sector seems to have a solid footing as well. The total earnings of the sector are expected to increase 7.2% while revenues are estimated to improve 6.8%. Margins in the quarter are expected to be flat year over year, following a 0.4% decline in the fourth quarter 2017.

How to Make the Right Choice?

With the existence of a number of key players in the industry, finding the right stocks that have the potential to beat earnings estimates might appear to a difficult task. One way to narrow down the list of choices is by looking at stocks with a favorable Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.

Earnings ESP is our proprietary methodology to determine which stocks have the best chance to surprise in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. An earnings beat boosts investor confidence in the stock, which is reflected in its rapid price appreciation. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

3 Attractive Picks

Las Vegas Sands Corp. (LVS - Free Report), being a distinguished developer, owner, and operator of casino resorts, has solid business fundamentals. Notably, the company’s consistent efforts to boost tourism and traffic in Macao are yielding results. Additionally, its portfolio therein is experiencing strong visitation of late. Focus on diversification and growth in the mass and non-gaming market also bode well for Las Vegas Sands’ and should aid margins.

Las Vegas Sands has a Zacks Rank #3 and an Earnings ESP of +3.49%. The consensus mark for the quarter is pegged at 86 cents, mirroring a gain of 30.3% on a year-over-year basis. Notably, the company’s earnings have surpassed estimates in each of the trailing four quarters, with an average of 13.8%. Las Vegas Sands is scheduled to report its first-quarter results on Apr 25. 

Eldorado Resorts, Inc. (ERI - Free Report) provides casino and entertainment services primarily in Nevada and Louisiana. The company’s growth is primarily driven by acquisitions. In the past two years, it has completed two major buyouts namely Tropicana Entertainment and Isle of Capri. The company has a Zacks Rank #3 and an Earnings ESP of 0.39%. The consensus estimate for the quarter is pegged at 43 cents compared with 4 cents reported in the first-quarter 2017. Eldorado Resorts is scheduled to release first-quarter results on May 3.

Red Rock Resorts, Inc. (RRR - Free Report), which is engaged in casino entertainment, and gaming, as well as entertainment businesses, is likely to report first-quarter earnings on May 3. In the previous quarter, the company’s earnings surpassed the consensus mark by 26.9%.

Red Rock Resorts has a Zacks Rank #3 and an Earnings ESP of +1.37%. the Zacks Consensus Estimate for the quarter is pegged at 37 cents, reflecting a gain of 23.3% year over year.