Casino Stocks at Risk as Consumer Confidence, Spending Wanes

Casino stocks are flailing this year, and that scenario could worsen, as inflation weighs on consumer spending. Some experts say that’s already happening.

Citing a 0.3% drop in retail sales in May — and a dismal University of Michigan consumer sentiment report this month — Goldman Sachs says signs are emerging that US households are starting to rein in spending. That could be bad news for casino operators, which rely on discretionary expenditures.

Declining consumer spending does represent a threat to earnings for Consumer Discretionary stocks and the Autos industry group in particular,” according to the bank. “Used car prices have declined 6% since January, a sign that demand for vehicles overall may be faltering. The consensus expectation of 13% industry sales growth in 2023 appears Pollyannaish.”

Consumer discretionary — the sector where casino stocks resides — is one of the worst-performing groups this year. The S&P 500 Consumer Discretionary Index is home to several well-known gaming equities, including Las Vegas Sands (NYSE:LVS), MGM Resorts International (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), Wynn Resorts (NASDAQ:WYNN) and Penn National Gaming (NASDAQ:PENN).

Inflation Could Put Casino Stocks in Bind

The May reading of the Consumer Price Index (CPI) checks in at a staggering 8.6% — the highest level in 40 years — and with second-quarter earnings season looming in July, analysts believe inflation comments will increase on gaming industry conference calls.

The privately held company is the owner of Circa, the D, the Golden Gate, and the Downtown Las Vegas Events Center.

Last month, Hard Rock International CEO Jim Allen said high gas prices could prompt some would-be casino visitors to stay at home. Soaring producer prices mean operators are contending with elevated costs when it comes to refurbishing venues.

Maybe Some Hope for Casino Stocks

The issue of high fuel prices is a potentially significant drag on gaming operators, and while the Biden Administration is pushing a federal gas tax holiday, politicians on both sides of the aisle call it no more than a gimmick. In fact, President Obama said as much on the 2008 campaign trail.

In particular, regional casino operators are vulnerable to soaring gas costs, because many of their patrons drive to those venues and don’t stay the night. Still, Goldman Sachs sees opportunity for stocks to bounce back, even as households liquidate equity positions amid rising interest rates and declining equity prices.

“The S&P 500 rose by 8% on average during the years in since 1950 in which households sold stocks most aggressively,” notes the bank.