Investing.com -- JPMorgan has begun coverage on the U.S. gaming sector, naming PENN Entertainment Inc (NASDAQ:PENN), Red Rock Resorts (NASDAQ:RRR), and Caesars Entertainment Corporation (NASDAQ:CZR) as its top picks.

The Wall Street bank favors regional and Las Vegas locals over digital and Strip exposures, citing macro and policy uncertainties.

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“The Gaming sector is rife with risks, but potential rewards are high,” analysts led by Daniel Politzer wrote in a Monday note.

They highlight macro headwinds, tariff risk, and inflation as key pressures for land-based gaming, while regulatory and tax concerns weigh on digital operators. Despite those challenges, JPMorgan sees tactical opportunities and valuations appearing “appropriate for ‘Gaming 2.0.’”

Among the new Overweight-rated names, PENN stands out for its $1 billion pipeline of new projects due over the next two years, and a $325 million share buyback plan—equivalent to roughly 14% of its market cap.

The analysts expect ESPN BET losses to decline, while highlighting the value in PENN’s $65 million-plus market access fees.

For RRR, JPMorgan points out its improving EBITDA visibility into 2026-27, a high-quality asset base in a supply-constrained market, and potential upside from legislative changes, including tax relief on tipped income.

“Each [growth driver] could = $20-30m EBITDA y/y vs Street’s FY26 +$30m y/y,” the note states.

Caesars Entertainment also earns an Overweight rating, with the bank pointing to regional stabilization and the potential for $3 billion in cumulative net cash flow through year-end 2027—about 50% of its current market cap.

The analysts see valuation support even assuming no value for its OpCo assets and noted, “CZR is the sole omnichannel operator to build a profitable digital business.”

Among digital names,  Sportradar  Group AG (NASDAQ:SRAD) received an Overweight rating and “honorable mention” status, seen as better positioned near term due to a more stable revenue mix and improving margins.

JPMorgan believes gaming stock performance near term will hinge on “catalysts, momentum and intangibles,” while longer-term winners will be driven by capital allocation, asset quality, growth, and earnings visibility.

Despite persistent macro uncertainty, the bank sees room for upside in select names.

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