Regional Casinos Contending With GGR Headwinds
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Posted on: April 12, 2024, 06:31h.
Last updated on: April 12, 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 revenue (GGR), indicating that the bulk of top-line growth for the group is being sourced via new venues, not same-store sales increases.
Following poor weather in January that kept visitors at home, there was hope among analysts and investors that the current quarter could be more favorable for regional casino GGR, but Santarelli cautioned that view might not be validated.
When looking ahead to the 2Q24 and beyond, we believe the sentiment that easier 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 don’t necessarily expect, nor do we model, a return to growth, as we see moderating declines, though still negative comparisons.”
While activity on the Las Vegas Strip remains vibrant, there have been signs that high interest, sticky inflation, and other macroeconomic headwinds are weighing on some gaming venues in the Midwest and the South. Likewise, six of the nine casinos in Atlantic City, NJ experienced profit declines last year as 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 while another 10 notched declines of 2% of more.
March numbers in Michigan were bad as highlighted by a decline of 1.6% and it’s believed the growth in Illinois was driven by new venues, such as Bally’s (NYSE: BALY) and Full House Resorts’ (NASDAQ: FLL) temporary casinos, because same-store sales in that state slumped 6.7%.
Contributions from Bally’s temporary Chicago casino are debatable because 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 security, we don’t believe promotional strategies have altered materially in the 1Q24,” added Santarelli. “We continue to see certain operators in certain regions acting somewhat promotional, though broadly, behavior 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 Entertainment (NASDAQ: GDEN), and Red Rock Resorts (NASDAQ: RRR). All three share something in common: heavy exposure to the Las Vegas locals market.
Of that trio, only Boyd operates gaming venues outside of the Las Vegas Valley. The company is the largest operator in downtown Las Vegas and has some positive catalysts.
“We believe buyside sentiment, and as such, valuations, likely beget a favorable risk reward for several names. Amongst the solely regional / drive-to operators, we continue to like BYD, given: 1) the healthy 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 flexibility to drive growth through returns on investments,” concluded Santarelli.
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