Summary:
- The Las Vegas Strip continues to struggle while regional casinos are showing a stable form, according to a new analysis.
- Barry Jonas believes online gambling is facing ongoing pressure from prediction markets and online sports betting.
- Caesars and MGM showed mixed trends, while Penn Entertainment and Boyd recorded strober performance.
Gaming stocks remain out of favor on Wall Street, according to Truist Securities analyst Barry Jonas, who also sees early signs of stability in parts of the industry.
Gaming, Still “Out of Favor”
In an April 21 note, Jonas said gaming “remains out of favor” though he pointed to small improvements in specific segments. The clearest weakness remains Las Vegas, where growth has been difficult to sustain. Locals-focused casinos in the city also face what he called short-term “idiosyncrasies”.
When customers stay closer to home, regional casinos make a profit since they feature the “best setup” heading into first-quarter earnings, with Churchill Downs and Monarch Casinos & Resorts as top picks.
Online gambling, however, remains under pressure, “challenged” by the rising online sports betting and prediction markets. Broader concerns around the economy and oil prices are also part of the problem.
Events and Leisure Travel, Still Weak
Large events that usually attract massive crowds to Vegas were able to work their magic either, explained Jonas, who cited the major CON/AGG convention with 140,000 attendees that failed to boost Strip cash flow meaningfully.
Jonas said hotel occupancy and tourism bottomed in the first quarter, while revenue per available room went up by 5%.
Still, he noted ongoing weakness in leisure travel.
We don’t think it was enough to offset overall softness in the leisure segment with the well-known challenges at the low end, softer international visitation and value-perception issues
Some operators are trying to adjust. Jonas used the examples of Caesars Entertainment and MGM Resorts International, two important venues that have leaned into bundled hotel packages at lower-end properties.
Still, it remains to be seen what sort of upside this will yield
Price trends in Las Vegas hotels have also been uneven, with rates dropping early in the year, improved in March, then fell again in April before rebounding strongly into May and June.
Regional casinos, in the meanwhile, remain more stable, with Station Casinos seeing short-term pressure from renovations, and Boyd Gaming facing mixed results at its destination properties.
However, both properties benefit from steady local demand as well as new developments like Cadence Crossing.
Finally, Jonas made sure to also highlight the stronger performance recorded by Penn Entertainment and Boyd, while explaining that Monarch and Churchill Downs stand out for asset quality and upcoming events like the Kentucky Derby. The latter is expected to bring in between $15 to $20 million in cash flow.
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