Landing a Zacks Rank #5 (Strong Sell) and the Bear of the Day, a decline in earnings estimate revisions is starting to make it clear why investors may want to stay away from Bally’s BALY stock.

Rising over +20% in 2024, it may be time to take any profits in Bally’s stock as the casino and hotel operator is a ways away from being profitable despite this year’s optimism. Furthermore, BALY is still down 50% in the last three years and the return to downside risk has resurfaced after its very subpar Q3 results in November.

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High Operating Expenses Lead to Weak Q3 Results

Seeing its operating expenses increase by 20% year over year, Bally’s reported a Q3 net loss of $247.86 million or -$1.99 a share. This widely missed Zacks estimates which called for a Q3 adjusted loss of -$0.25 a share while contracting from EPS of -$1.15 in the comparative quarter.

On the top line, Q3 sales of $629.97 million dipped from $632.48 million a year ago and missed estimates of $650.63 million by -3%. More concerning is that Bally’s has missed earnings expectations in three of its last four quarterly reports and has been short of sales estimates for six consecutive quarters.

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Industry Weakness & Regulatory Scrutiny

Operating in a competitive landscape, Bally’s is not alone in what has been challenging market conditions as the Zacks Hotels and Motels Industry is in the bottom 23% out of 250 Zacks industries. For hotel-casino operators specifically, regulatory scrutiny has been an issue as it’s also noteworthy that there have been ongoing investigations and inquiries into Bally’s accounting practices by the SEC.

Declining EPS Estimates

Adding fuel to the fire after Bally’s recent earnings miss is that fiscal 2024 EPS estimates had already plummeted over the last 60 days from expectations of an adjusted loss of -$6.08 a share to -$11.07. Plus, FY25 EPS is now projected at a loss of -$3.53 compared to -$3.01 two months ago.

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Lackluster Top Line Trajectory 

What may start to sour investor sentiment for Bally’s future earnings potential is that the company is expecting less than 1% sales growth in FY24 and FY25 with projections remaining near $2.4 billion.

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Bottom Line  

Considering there are accounting probes into Bally’s financial practices it's easy to see how investors may be inclined to look away from BALY. To that point, the trend of declining EPS estimates is very concerning as Bally's remains well below the profitability line.

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