Regional Casino Operators Face Challenging Growth Climate, Says Analyst
When it comes to gross gaming revenue (GGR), regional casinos are facing what Deutsche Bank analyst Carlo Santarelli refers to as a "slow bleed," meaning that new venues—rather than same-store sales growth—are providing the majority of the group's top-line growth.
There was optimism among analysts and investors that the current quarter could be better for regional casino GGR after bad weather in January kept guests at home, but Santarelli cautioned that perspective might not be justified.
"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.”
Although the Las Vegas Strip is still bustling, there are indications that certain casino establishments in the Midwest and the South are feeling the effects of high interest rates, sticky inflation, and other macroeconomic challenges. Similarly, while more residents adopted iGaming last year, profits declined at six of Atlantic City, New Jersey's nine casinos.
Certain Regional Casino Numbers Seem to be Inaccurate
Only Colorado has seen growth in gross gaming revenue this year among the states with gaming establishments designated as regional casinos; the other ten states had reductions of at least 2%.
Michigan's March results were dismal, as evidenced by a 1.6% fall. It's thought that new venues, such Bally's (NYSE: BALY) and Full House Resorts' (NASDAQ: FLL) temporary casinos, were the driving force behind Illinois' rise, as same-store sales fell 6.7% in that state.
The Illinois Gaming Board (IGB) statistics shows that Bally's temporary Chicago casino fared better in terms of gross gaming revenue (GGR) in March than only two other casinos in the state, hence the facility's contributions are questionable.
“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.”
Stocks of Regional Casinos to Consider
Santarelli stated that he preferred the equities of Boyd Gaming (NYSE: BYD), Golden Entertainment (NASDAQ: GDEN), and Red Rock Resorts (NASDAQ: RRR) among regional casino companies. One element unites all three: extensive exposure to the local Las Vegas market.
Out of the three, Boyd is the only one who runs casinos outside of the Las Vegas Valley. The business has some encouraging catalysts and is the biggest operator in downtown Las Vegas.
“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.