The second quarter is in the books and while the investment community awaits the reporting of gaming industry earnings, one analyst has a prediction.
“Positive fireworks,” Macquarie Securities analyst Chad Beynon told investors in a research note published the day after July 4th.
Beynon said gaming revenues in regional casino markets were up 3 percent during May, the third consecutive positive month following declines in the beginning of the year due to bad weather conditions in many states.
He believes the second quarter results for Penn National Gaming, Caesars Entertainment, Eldorado Resorts and few other regional companies will include attractive numbers.
“As operators continue to peel back promotional/marketing dollars, we see revenue growth maintained but better flow-through, even with cost/wage inflation,” Beynon told investors.
Gaming companies will report second quarter results during July and August. Beynon expects some investor attention to be focused on legal sports wagering, following the U.S. Supreme Court’s rejection of the Professional and Amateur Sports Protection Act in May.
Casinos and racetracks in New Jersey and Delaware have opened sportsbooks and other states, including Mississippi, are expected to follow suit. However, Beynon said that it’s still early in the game.
“We expect more data/commentary to help the (regional casino operators),” Beynon said. “Since PASPA repeal, names have faded but we believe current valuations reflect almost zero benefit from the new amenity.”
In his report, Beynon said several casino companies experienced weakness in various markets, but those results were off-set by performances in other locations.
For example, Penn National saw gaming revenue declines at its top three regional properties, However, the company’s Ohio properties (two racetrack casinos and the Hollywood casinos in Columbus and Toledo) were all on the positive side of the ledger in May and during the quarter.
Also, Beynon said Penn’s deal announced in June to acquire the Margaritaville in Bossier City, La., for $115 million, “affirms” the company has the “bandwidth” to complete smaller deals while it closes a $2.8 billion merger with regional rival Pinnacle Entertainment.
Caesars, which Beynon said has never offered guidance on its regional portfolio, said Harrah’s New Orleans and Horseshoe Bossier City both out-performed the Louisiana market during May.
He said Caesars “could see headwinds” in Atlantic City following the openings of the Hard Rock and Ocean Resort last month. Caesars operates three casinos in Atlantic City.
“Discussions with Atlantic City casinos during our recent trip point to an increase of traffic to the area with the two new properties coming online but a visitation decline per property,” Beynon said. “We believe this impact will be offset by further marketing/labor cuts in response.”
As for Reno-based Eldorado Resorts, Beynon said the company’s hometown in Northern Nevada, “remains arguably the strongest market in gaming,” with non-gaming revenue also growing, primarily through hotel room revenues.
Eldorado’s two planned acquisitions announced during May – $1.85 billion for Carl Icahn’s eight casino-Tropicana Entertainment and $328 million for the Grand Victoria in Illinois – made the company a focus of the regional gaming universe.
Eldorado also announced plans to develop property surrounding its South Florida casino and it’s been speculated the company may look at moving its Lake Charles, La., riverboat casino on shore through the state’s newly enacted change in gaming law.
Both Boyd Gaming Corp. and Red Rock Resorts, Beynon said, benefited from an improved Las Vegas locals gaming market. He added that Boyd was also able to overcome any regional weakness with good months from select properties, including its Delta Downs racetrack casino in Louisiana.
Beynon said Penn, Eldorado and Red Rock Resorts, “are in strong margin improvement positions, which we believe will shine through in the second quarter given operating leverage.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
