Macquarie: Regional Casino Stocks Showing Better Post-Earnings Reaction

• Regional operators locked in stronger post-Q1 earnings gains than their larger, tourism-heavy peers
• Analysts note that regional casino stocks are steadily tracking pure market fundamentals rather than speculative hype
• Looking ahead, regional names are projected to consistently outpace Las Vegas Strip-heavy rivals through the end of the year

First-quarter earnings season is in the books for the gaming industry, and it delivered a clear post-report divergence tilting in favor of regional casino stocks.

In a new report to clients, Macquarie analyst Chad Beynon notes the average first-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) beat notched by regional operators was approximately 3% compared to about 2% for larger peers.

He also highlights “EBITDA minus stock moves” as further evidence of divergence in stock reactions compared to underlying fundamentals.

At the regional level, the group average residual of 0% suggests stocks broadly tracked fundamentals, but several names diverged meaningfully,” says the analyst.

That group includes Boyd Gaming (NYSE: BYD), Century Casinos (NASDAQ: CNTY), Churchill Downs (NASDAQ: CHDN) and Red Rock Resorts (NASDAQ: RRR). Post-earnings, those regional casino stocks underperformed relative to their fundamentals.

On the other hand, the post-earnings reactions notched by shares of Full House Resorts (NASDAQ: FLL) and Monarch Casino & Resort (NASDAQ: MCRI) overshot their fundamentals, according to Beynon.

Regional Casino Stocks Can Extend Durability

Despite the headwinds of high gas prices, slack consumer sentiment and still elevated interest rates, the broader group of regional casino stocks has been mostly solid this year.

“Regional trends remained stable with low-single-digit growth, with some markets seeing supply pressure,” observes Beynon. “Overall, 1Q reinforced a steady underlying fundamental backdrop in Gaming, but with stock moves only partially explained by estimate revisions, as several names exhibited either underreaction or overreaction vs fundamentals, highlighting a continued role for positioning, Vegas exposure, and macro uncertainty in stock moves.”

The analyst has “outperform” ratings on some regional operators, including Penn Entertainment (NASDAQ: PENN) and Red Rock and more tepid “neutral” grades on the likes of Boyd, Full House and Monarch.

Las Vegas Outlook

On the Strip, there are nascent signs of recovery with operators discussing resilience among affluent consumers and strong convention and meeting calendars.

However, the potential takeover of Caesars Entertainment (NASDAQ: CZR) and subsequent impact on rival MGM Resorts International (NYSE: MGM) loom large. Until that transaction is formally announced, and there are no guarantees it will be, investors embrace Strip-heavy stocks are likely to rely on data and management commentary.

“Management commentary across 1Q reinforced a bifurcated demand environment, with high-end segments continuing to outperform, while core leisure remains more mixed, particularly in Vegas where value-oriented behavior persists,” concludes Beynon. “Operators remain constructive on group/convention demand into 2H and beyond, but investor focus continues to center on the trajectory of mass and potential reacceleration of promos.”

He has “outperform” ratings on Caesars and MGM.