Citing playwright Samuel Beckett’s never-arriving Mr. Godot, Truist Securities analyst Barry Jonas wrote that the main character in the 1952 Waiting for Godot did arrive in 2023 in the form of higher and higher interest rates. Jonas, in an investor note published today, expected “the macro to dominate yet again [in 2024] amidst mostly stable fundamental, though this time, the prospect of a soft landing and lower rates could be a boon for levered gaming equities.”
Jonas added that stable or lowered interest rates, at which the Federal Reserve has hinted, could redound to the benefit of the gaming industry’s more heavily leveraged brands. They could also propel increased merger-and-acquisition activity, he wrote, “to a traditionally acquisitive space.”
Thanks to its event calendar, Jonas reasoned, the Las Vegas Strip heavily outperformed regional casinos, with seven percent growth in gross gaming revenue, compared to one percent for outlying properties. Digitally derived revenue vaulted 34 percent, thanks to new markets and increased penetration in existing ones.
For 2024, Jonas predicted tougher comparisons. Vegas revenues should be only moderately ahead of (flat) regional revenues, as costs increase.
The analyst predicted continued double-digit growth for igaming and sports betting, “despite fewer new market openings and election-year malaise.” However, looming budget deficits at the state level could prompt investors to look at potential igaming legalization in previously untapped markets.
Predicting a swing from underperformance to outperformance, Jonas tapped Caesars Entertainment as his favored operator. He predicted igaming and sports-betting profitability, as well as a continued benefit should Caesars pay down debt.
Coming out of a disappointing 2023, gaming-exposed REITs were said to have suffered from a paucity of deals and “the volatile rate environment was not conducive to rate-sensitive TNL equity valuations.” However, Jonas said interest rates should be both less volatile and lower this year, lubricating capital markets and boosting Vici Properties and Gaming & Leisure Properties.
Jonas liked both REITs. He lauded GLPI for a balance sheet that would give it the flexibility to strike more deals. Vici, he added, had the “more visible growth prospects,” particularly if it exercised its call option on Caesars’s former Centaur Gaming properties in Indiana near year’s end. He maintained “Buy” ratings on both REITs.
Although gaming-tech stocks were deemed to have outperformed in 2023, Jonas remained upbeat. Slot-replacement cycles were expected to be “flattish,” but they would be counterbalanced by important new-casino openings.
Other drivers of technology sales would be growth in peripheral jurisdictions, a bounce from new-product debuts at Global Gaming Expo, online expansion, and “continued operator focus on analytics and profit maximization supporting gaming tech.”
With many small-cap tech stocks trading at what Jonas opined were cyclically low multiples, he saw prospects for mergers and takeovers. A favorite for acquisition is buy-rated AGS: “With the bulk of the company’s revenue comprised of pure gaming equipment, we think strong product feedback could drive more relative upside to estimates and the stock.” He forecast that another year of valuation at five times cash flow would make it ripe for the plucking.
