Taking a pessimistic view of the market, Jefferies Equity Research analyst David Katz lowered his cash-flow and revenue projections for the gaming group in an April 17 investor note. “The tumult in the broader market brings to bear discussion on the multi-year underperformance of the sector,” he wrote.
Katz cited the minimal price increase of gaming stocks, which have risen a mere five percent since January 1, 2020. The broader S&P Index ascended 65 percent during that same time period.
The analyst began with Macau, where revenues have been stuck 20 percent to 25 percent below pre-COVID levels and the first quarter ended 25 percent below the same point in 2019. He lowered his forecasts for Las Vegas Sands and Wynn Resorts as a consequence.
“However, the larger question looming is not if but how much impact the escalating trade war has on the market and its operators,” Katz warned. He said his research found that Macanese government officials were expecting near-term impact from trade strife between China and the United States, “while investors raise whether a trade war could have greater impact on U.S.-traded operators.”
Turning to Las Vegas, Katz lowered his projections for Caesars Entertainment, leaving his numbers for MGM Resorts Entertainment and Wynn Resorts alone. “Our impression from management teams through the quarter is that volumes, pricing, and margins are largely as expected,” he continued, adding that the key area of interest now would be expectations of international inbound travel and group business.
As economic unevenness expands, Katz wrote, regional casinos would still be “competitive and choppy.” He lowered projections for Boyd Gaming, Station Casinos, Churchill Downs, and Caesars. “Although same-store market growth has been flattish and choppy, the capital-growth plans become a more dynamic discussion focused on the cost and availability of materials,” he reported, alluding to the impact of tariffs.
“Further, the varied focus on digital remains a debate, as some have pursued it with negative results for various reasons, some have opposed it, and others have ignored it, none of which is positive for the stocks,” Katz elaborated. Still, he felt that regional operators were “the safer orientation for now,” not Las Vegas or Macau.
Katz reduced his price targets on six large-cap gaming stocks. Boyd went from $93 per share to $86 and Station from $52 to $41. Las Vegas Sands dropped from $67 apiece to $53 and Wynn from $118 to $111. Churchill Downs was trimmed from $162 a share to $160 and Caesars Entertainment’s target went from $50 to $36. All but one of those stocks (Station) were trading below their new targets at the time of Katz’s report.
Despite its lower valuation, Boyd remained a top pick for Katz. He pointed to its capex commitment to its regional casinos and easier comparisons coming in Las Vegas. He also felt its stake in FanDuel was undervalued and worth $7 per share alone.
“Despite the initial strength of Durango, the ensuing capital investment to enhance the property is creating near-term disruption, which could be furthered by additional expansions, although the current environment could impact that decision,” Katz wrote of Station. He cited a large portfolio of property upgrades and an attendant increase in leverage as impediments to the appreciation of Station shares.
Sands was termed “a disappointment,” by Katz. “Our expectation heading into 2025 was that the Londoner suites would re-enter the Macau market and position Sands to take share.” This had not occurred, Katz said, but he felt the underlying thesis for Sands in Macau remained solid.
Conceding that the rest of the year in Macau provided “very low visibility,” Katz wrote that his Wynn Resorts estimates were lowered in keeping with present-day trends. “Note that there remains considerable land value in Las Vegas, which is presently not contemplated in our valuation.”
With regard to Caesars, Katz said his view of the stock was colored by competitive pressures over the last several quarters, especially in Louisiana and Indiana. There, new rivals have negated the positive impact of property upgrades, including Caesars New Orleans. “This trend appears to be continuing in the current quarter,” he added.
As for the least-tweaked of Katz’s subset, Churchill Downs, Katz felt that the company’s large expansion project was weighing down the share performance. In particular, Churchill Downs recently opened The Rose casino in Virginia and has committed $900 million to upgrading its eponymous racetrack in Louisville. All of this, plus other projects, is combining to keep the company’s leverage elevated.
