Casino Stocks Primed for Third-Quarter Earnings Beats

Posted on: October 2, 2022, 07:00h. 

Last updated on: October 5, 2022, 05:19h.

The third quarter was a forgettable one for casino stocks, as the group shrunk alongside the broader market. But those declines could belie a strong batch of earnings.

casino stocks
Traffic drives by the Paris on the Las Vegas Strip. An analyst says casino stocks could be primed for earnings surprises. (Image: Bloomberg)

With the arrival of the fourth quarter, so comes a new earnings season. Some analysts believe August’s gross gaming revenue (GGR) from the Las Vegas Strip implies a potential upside to casino operators’ third-quarter profit estimates. Strip GGR in the eighth month of the year checked in at $659 million, representing a year-over-year increase of 5%, with gains in the slot, mass market table, and VIP play. That’s despite one less weekend day in the month.

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

The Nevada Gaming Control Board (NGCB) hasn’t yet delivered its September report. But the August update marked the 18th consecutive month in which the state’s casinos topped $1 billion in combined monthly revenue.

Where Casino Stocks Earnings Opportunities Lie

Amid myriad challenges in Macau and no exposure to the US, Las Vegas Sands’ (NYSE:LVS) third-quarter results will largely be evaluated through the lens of Marina Bay Sands in Singapore.

Rival Wynn Resorts (NASDAQ:WYNN) has some avenues for offsetting Macau exposure by way of Wynn and Encore on the Strip and Encore Boston Harbor. But when it comes to casino stocks, the current consensus is a preference for the names with exposure to Las Vegas, including the Strip, downtown, and locals.

“Against consensus estimates for companies exposed to LV Strip, LVL or Reno, we believe consensus appears to be achievable,” added Beynon. “As we’ve noted, LV searches remain strong, albeit with a short booking window. Overall ‘searches’ were +7% MoM in August, following 5% in June and 3% in July, with continued strength in the September/October search period, albeit with slightly lower growth for searches over the next 30–90-day period.”

The analyst notes Strip operators could face difficulties following a brisk summer travel season. But Raiders home games, the start of the NHL season (Golden Knights), and a possible rebound in convention and meeting business are factors that could support GGR into year-end.

Casino Stocks to Examine as Earnings Season Looms

In terms of Strip exposure, MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ:CZR) lead the way, as that area accounts for 47% and 45% of their respective revenues, according to Macquarie.

Given the market sell-off, we continue believe there’s value in the group. Off of current ’23 EBITDA estimates, MGM and CZR are now trading sub 7x EV/EBITDA, however, we note this multiple could rise if 2023 estimates are decreased 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, noted Beynon. Vibrancy downtown and in the Las Vegas locals market could bode well for Boyd Gaming (NYSE:BYD) and Red Rock Resorts (NASDAQ:RRR).