Gaming Spend Remains Resilient, Analyst Highlights Boyd, Century, Golden Entertainment

Inflation is soaring and the Federal Reserve is closing in on another interest rate hike. But, for now, at least, those macro headwinds aren’t hindering spending at US casinos.

Those issues are prompting investors to speculate that the US economy is moving toward recession. But regional casino data paints a different picture — one of resilient March demand that seeped into April. Some analysts believe the combination of recently faltering share prices and overly bearish economic expectations could be creating opportunities with select regional casino operators.

We also don’t believe investors are appreciating the resiliency of GGR/visit over the past few months, which counters a core bear case that spend/trip should be reverting lower as stimulus benefits fade,” said Roth Capital analyst Edward Engel in a note to clients.

The analyst points out that casino visitation remains below pre-coronavirus levels. But as visitation rebounds, that could offset a potential decline in current spending levels due to fading government stimulus.

Looking for Sources of Strength

Among individual regional operators, Boyd Gaming (NYSE:BYD) is an example of one company reporting encouraging demand trends.

Las Vegas-based Boyd runs 28 gaming venues across 10 states, including 11 in its home city. Bolstered by strength in the Las Vegas locals demographic and solid demand trends in regional markets, the operator posted stout first-quarter results.

“April commentary also suggested continued consistency, both for rated and unrated play (loyalty vs untracked customers). Even amid a backdrop of potential consumer softness, Boyd sees late-recovery drivers offsetting macro headwinds, such as improving mid-week visitation and greater revenue capacity amid easing employment bottlenecks,” adds Engel.

The analyst notes there’s room for upside in terms of casino visitation by those in the 65+ demographic. Should that demand materialize, it’d likely benefit an array of regional operators, including Boyd.

Make the Cash Call

At a time when financial markets are punishing companies that aren’t profitable, analysts say risk-tolerant investors considering casino equities may do well to favor those that are generating copious amounts of free cash flow.

Regional operators Century Casinos (NASDAQ:CNTY) and Golden Entertainment (NASDAQ:GDEN) are among the leaders in that department.

We continue to recommend gaming stocks with 10%+ FCF yields, where cash flows are being applied to shareholder returns and continued deleveraging. Specifically, we highlight GDEN (15% FCF yield) and CNTY (18%), which both offer late-recovery drivers and stable underlying demand,” says Engel.

On its current free cash flow trajectory, it’s possible Golden will generate approximately $200 million in cash this year — more than 10% of its market capitalization — for share repurchases.