Casino stocks could see some Q3 earnings surprises

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Posted on: October 2, 2022 at 7:00 am.

Last updated on: October 1, 2022, 10:21 am.

The third quarter was a memorable quarter for casino stocks as the group shrank along with the broader market. But these declines could mask a strong winning streak.

Casino Stocks
Traffic on the Las Vegas Strip. One analyst says casino stocks could be braced for earnings surprises. (Picture: Bloomberg)

With the arrival of the fourth quarter also comes a new earnings season, and some analysts believe August’s gross gaming revenue (GGR) from the Las Vegas Strip means potential upside for casino operators‘ third-quarter earnings estimates. Strip GGR reached $659 million in the eighth month of the year, up 5% year-on-year with gains in slots, mass market tables, and VIP games. And that despite one less weekend day per month.

For September, we forecast $680m +6% yoy (+3% yoy), which would result in 3Q22 +3% yoy and 3% yoy. This compares to consensus EBITDA of +23% YoY and -6% Seq for the Vegas group as most of the YoY growth is driven by non-gaming revenue including record RevPAR. “ wrote Macquarie analyst Chad Beynon in a new report.

The Nevada Gaming Control Board (NGCB) has yet to release its September report. But the August update marked the 18thth Consecutive month in which the state’s casinos generated over $1 billion in combined monthly revenue.

Where are the earning opportunities from casino stocks

Amid myriad challenges in Macau and no engagement in the US, Las Vegas Sands (NYSE:LVS) third-quarter results are judged largely through the lens of Singapore’s Marina Bay Sands.

Rival Wynn Resorts (NASDAQ:WYNN) has a few opportunities to offset exposure to Macau through Wynn and Encore on the Strip and Encore Boston Harbor. But when it comes to casino stocks, the current consensus is a preference for Las Vegas-related names, including the Strip, downtown, and locals.

“Contrary to consensus estimates for companies exposed to LV Strip, LVL or Reno, we believe consensus appears to be achievable,” Beynon added. “As we have noticed, LV searches remain strong, albeit with a short booking window. Overall “Searches” grew +7%m/m in August, after 5% in June and 3% in July, with continued strength in the September/October search period, albeit with slightly slower search growth over the next 30-90 years days.”

The analyst notes that strip operators may face some difficulties after a brisk summer travel season. But the Raiders’ home games, the start of the NHL season (Golden Knights), and a potential recovery in convention and meeting business are factors that could support GGR through year-end.

Casino Stocks to Study During Earnings Season

In terms of strip exposure, MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ:CZR) lead the way, as Macquarie says the space accounts for 47% and 45% of their respective revenues, respectively.

“Given the market sell-off, we continue to believe the group has value. Based on the current 23x EBITDA estimates, MGM and CZR are now trading below 7x EV/EBITDA. However, we note that this multiple could rise if estimates for 2023 are lowered further as sentiment continues to weaken. said Beynon.

While the Strip is the epicenter of the US gaming industry, other Nevada markets including downtown Las Vegas, locals and Reno are showing signs of life, Beynon noted. Vibrancy in downtown and in the local Las Vegas market could bode well for Boyd Gaming (NYSE:BYD) and Red Rock Resorts (NASDAQ:RRR).

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