Regional Casino Operators Encounter Tough Growth Climate, Says Analyst
Posted on: April twelve, 2024, 06:31h. 
Last updated on: April twelve, 2024, 06:31h.
Regional casino are contending with what Deutsche Bank analyst Carlo Santarelli describes as a “slow bleed” when it comes to gross gaming income (GGR), indicating that the bulk of top-line development for the group is becoming sourced by way of new venues, not identical-store sales increases.
Following poor weather in January that kept site visitors at residence, there was hope amid analysts and investors that the existing quarter could be much more favorable for regional casino GGR, but Santarelli cautioned that view might not be validated.
When seeking ahead to the 2Q24 and past, we think the sentiment that simpler compares will manifest in an improved cadence (growth) in GGR is likely misguided to some degree,” observed the analyst. “While compares will ease in the 2Q24, we really do not necessarily assume, nor do we model, a return to development, as we see moderating declines, though even now negative comparisons.”
Even though activity on the Las Vegas Strip stays vibrant, there have been indications that higher curiosity, sticky inflation, and other macroeconomic headwinds are weighing on some gaming venues in the Midwest and the South. Likewise, six of the 9 casinos in Atlantic City, NJ experienced profit declines last yr as much more locals embraced iGaming.
Some Regional Casino Numbers Appear Deceptive
Of the states with gaming venues classified as regional casinos, only Colorado has posted GGR growth this year although one more ten notched declines of 2% of more.
March numbers in Michigan were negative as highlighted by a decline of one.six% and it is believed the growth in Illinois was driven by new venues, such as Bally’s (NYSE: BALY) and Full Home Resorts’ (NASDAQ: FLL) short-term casinos, since very same-store income in that state slumped 6.7%.
Contributions from Bally’s temporary Chicago casino are debatable due to the fact Illinois Gaming Board (IGB) data indicate the venue outperformed just two other casinos in the state in March GGR terms.
“While GGR can often mislead and lull investors into a false sense of safety, we really don’t believe promotional techniques have altered materially in the 1Q24,” added Santarelli. “We continue to see certain operators in certain regions acting relatively promotional, though broadly, conduct is unchanged on a quarterly sequential basis.”
Regional Casino Stocks to Like
Among regional casino stocks, Santarelli expressed a preference for Boyd Gaming (NYSE: BYD), Golden Enjoyment (NASDAQ: GDEN), and Red Rock Resorts (NASDAQ: RRR). All three share something in common: heavy exposure to the Las Vegas locals industry.
Of that trio, only Boyd operates gaming venues outdoors of the Las Vegas Valley. The business is the greatest operator in downtown Las Vegas and has some optimistic catalysts.
“We think buyside sentiment, and as this kind of, valuations, probably beget a favorable risk reward for many names. Amongst the solely regional / drive-to operators, we proceed to like BYD, given: one) the healthier balance sheet and capital returns, 2) the LV locals exposure, 3) the growth in the LV Downtown segment, 4) the FanDuel stake, and 5) broader optionality and versatility to drive development by way of returns on investments,” concluded Santarelli.