Training his crystal ball on the future of Las Vegas, Jefferies Equity Research analyst David Katz picked Station Casinos and MGM Resorts International as two companies to watch. He also dissented from “the view that Las Vegas earnings have peaked,” although he allowed that growth in regional casinos was modest.
“The long-term set up in Las Vegas is strong,” Katz stated, saying its economy was still tourism-powered. He cited Las Vegas Convention & Visitors Authority data showing tourists as responsible for 50 percent of southern Nevada’s overall economic output.
To sustain this, Katz said area businesses and governments need to invest heavily in both infrastructure and entertainment. Improved transportation, resort renovations, and the addition of new sports franchises all had the potential to power growth “for the foreseeable future.
“The coordinated effort of government officials and corporations to increase visitation to the region provides companies with a growing consumer base,” the analyst continued. He said casino companies should look to Las Vegas as a source of consistent year-over-year growth.
He noted that travel to Sin City rose 1.7 percent last year and that the workforce is increasing at over double the national average. Katz added that retirees and potential ones will outnumber the rest of the populace by a 5.6 ratio by 2030. “Put simply, we think the concerns that Las Vegas has peaked are overdone.”
Katz characterized himself as bullish on Station, largely on the strength of its development pipeline. He also liked the company plan to reduce its leverage to 3.4 times cash flow by next year, moving toward a goal of 3-to-1 debt to cash flow. He predicted that the Vegas-centric company’s revenue would rise from $1.7 billion this year to $2 billion next year.
Development, Katz said, is “a key pillar” of Station’s growth story, with 70 percent of Clark County’s expected growth happening within three miles of a Station-owned development site (it has six, comprising 441 acres) or an existing casino. He added that Wynn Resorts would likely pull the trigger on developing 38 acres of raw Strip land if it isn’t green-lit for a casino in New York City.
The analyst was similarly keen on MGM, in part due to its alliance with Marriott International, which he deemed preferable to relying on online travel agencies. Of the Marriott Bonvoy alliance, he wrote, “So far, results have exceeded initial expectations.”
MGM can also look toward a strong 2024 calendar of events, including the second running of the Las Vegas Grand Prix. “Furthermore, the easing of comps due to the cybersecurity attack in ’23 provides another opportunity to create positive momentum for the company.” Katz projected $9 billion in Vegas-drawn MGM revenues next year, up from $8.8 billion in the 2023 fiscal year.
The advent of major-league sports in Las Vegas, Katz wrote, has high potential upside. For instance, Raiders football tickets went from $88 a seat in Oakland to $169 at Allegiant Stadium, the highest price in the nation.
Additionally, “The Las Vegas A’s could become another venue for economic value in the market.” Katz explained that Athletics attendance, lowest in Major League Baseball, could increase 18 percent, while ticket prices could appreciate by as much as 90 percent.
Katz also noted the Oak View Group’s NBA-targeted, $10 billion megaresort project to be built (without public funding) on a stadium site beyond the Las Vegas Strip. If incepted, Oak View’s development would include a 20,000-seat arena.
Katz did caution that overall consumer spending might decrease, noting that it’s currently slightly lower than last year’s peak of $330 per visitor, if still above 2018-2019 levels. He warned, “The personal savings rate is also lower, near 3.2%, and consumer loans and the delinquency rate continue to increase.”
Also, visitation “could stall” in 2030, when Reid International Airport is expected to hit capacity and remain there until 2037, when a second internationally focused airport is projected to open. Also, “the reassignment of airlines from [Reid] to the new airport in Ivanpah Valley will be a challenge, given the lack of direct access to the Strip.”
On the plus side of transportation, Katz acknowledged the April 22 groundbreaking for the Brightline West rail project. The rail line, when completed, would connect a station on Blue Diamond Road, south of the Strip, with Victor Valley, California, at a cost of $12 billion. Its projected economic benefit, according to Jefferies, will be $10 billion.
