Penn National, Twin River Among Regional Names Analyst Prefers to Strip Operators

Posted on: July 7, 2020, 07:43h. 

Last updated on: July 8, 2020, 11:48h.

Amid ongoing spikes in coronavirus case tallies throughout the US, travel and leisure stocks, including gaming equities, tumbled Wednesday. But one analyst believes regional casino names could prove resilient relative to destination market peers.

Analyst Touts Regional Gaming Stocks
One analyst says investors may want to leave Las Vegas, and it’s famous strip (seen here), for regional gaming stocks. (Image: Las Vegas Review-Journal)

In an interview with Fox Business, SunTrust Robinson Humphrey analyst Barry Jonas said the current operating climate is more conducive to success for regional gaming companies rather than those that depend heavily on the Las Vegas Strip, such as Caesars Entertainment (NASDAQ:CZR) and MGM Resorts International (NYSE:MGM).

The analyst is bullish on Monarch Casino & Resort (NASDAQ:MCRI), Penn National Gaming (NASDAQ:PENN), and Twin River Worldwide Holdings (NYSE:TRWH). He noted that those companies operate venues that, in most cases, are driveable distances from the homes of guests.

These properties will limit the amount of people who could come in and limit the amount of slot machines, table games,” said Jonas.

He’s not the first sell-side analyst to lean toward regional operators over Strip-centric equivalents. It’s been a common refrain during the COVID-19 pandemic, with many analysts theorizing companies such as Penn National and TRWH could rebound more rapidly than rivals focusing on Sin City.

That’s because Las Vegas relies heavily on convention business and visitors arriving via air travel.

Limited Las Vegas Exposure

Of the three companies highlighted by Jonas, only Penn has a Sin City footprint, operating the M Resort and the Tropicana — the latter which hasn’t reopened.

“We still don’t have full supply open yet on the Strip,” said the analyst. “Timelines keep shifting. But our expectation is that it’s going to be pushed out further.”

Monarch operates the Atlantis in Reno, Nevada, and an eponymous property in Colorado, while TRWH has no presence in the Silver State. The lack of Las Vegas exposure could be beneficial to both gaming firms at a time when coronavirus cases are trending higher in Nevada. On July 2, a new high of 985 cases was reported, followed by 876 cases on July 6.

“It’s going to be a long time for that destination market to improve, and every uptick in cases around the country is a step backwards,” said Jonas in the Fox Business interview.

Now Leaving Las Vegas

There are some other benefits for operators that aren’t waiting on Las Vegas to look like it did in 2019. For example, regional gaming companies are noting improved margins following recent reopenings, with Caesars pointing out last month that its regional venues were outperforming its Strip properties.

Outside of Sin City, casino companies are realizing cost efficiencies with reduced staff counts and by eliminating low margin amenities, such as buffets and other lagging dining options. Additionally, regional gaming properties aren’t as dependent on convention traffic and California to drive revenue.

Jonas points out that since the reopenings, the Strip is slow on the weekdays because of yet-to-return corporate travelers.

Another issue for Las Vegas is California. The largest US state accounts annually for about one in five visitors to Sin City. But the Golden State is not only beset with a 16.3 percent unemployment, it’s also experiencing its own surge in coronavirus cases, potentially limiting travelers’ ability to get to the Strip.