On August 9, Station Casinos will release its second-quarter earnings report. It’s also the day that Deutsche Bank analyst Carlo Santarelli expects the company to reveal the fate of Texas Station, Fiesta Rancho, and Fiesta Henderson, all closed since March 2020 and none of which is planned to reopen. Or as Santarelli’s a 30-page analysis put it, “While we believe a more formal decision could be put forth in conjunction with 2Q22 earnings … we don’t see many reasons for the reopening of [Station’s] assets that were closed during the pandemic and have yet to reopen.”
Santarelli hinted at a sale by noting that the trio sits on 110 acres of real estate, land he values at $38.5 million. Station has already recaptured 90 percent of the three casinos’ business at other properties and is saving on labor and other expenses, according to the report.
This prognostication came early in the analysis, in which Santarelli reflected on the Las Vegas locals market, which he expects to cool slightly. Drive-in markets, he said, are much more vulnerable to current economic pressures. Even so, he lowered his revenue expectations for the second half of this year and all of 2023.
He also dropped his price targets for the three big locals operators. Station went from $54 a share all the way down to $45, Boyd Gaming from $77 to $73 a share, and Golden Entertainment, owner of The STRAT, from $57 to $51. While both Golden and Boyd were lauded for their geographic diversification, the fact that Boyd’s network of regional casinos is by far the largest appears to be a governing factor in its minor downgrade.
Price revisions aside, these are still optimistic outlooks. Station closed Wednesday trading at $33.13 a share, Boyd at $50.31, and Golden at $38.51. As Santarelli wrote, “While we believe the LV locals market has already experienced its cyclical peak, we think the market remains healthy, as it continues to evolve and benefit from population growth and higher average household income levels.” The big three among locals operators were also deemed to have better balance sheets and stronger real-estate portfolios than their industry peers, many of which have tapped out the value of their real estate via sale-and-leaseback arrangements.
Still, Santarelli warned, “Waning consumer confidence, eroded consumer savings, and continued pressures on consumer discretionary budgets stemming from inflation will become more evident in gaming spend.” Yet while spend per visitor is softening, it’s still well above 2019 levels. Additionally, data implies “that hiring and amenity creep expenses had largely stabilized.”
As for that lower visitor spending, it “relates to the elimination of the lower spend customer, whose typical patronage involved a trip to the since-shuttered buffet or on a low-value promotional offer.” Increased tourism to the Las Vegas Strip is seen as redounding to the benefit of Strip-facing properties such as Palace Station and the Orleans “and this strength is expected to continue with the resurgence in group business.”
Not only has one competitor (Silverton) taken its hotel off-line for a full revamp, but no new locals competition is expected until the completion of Durango Station. What’s more, Santarelli observed, neither Station nor Boyd nor Golden has suffered from the reentry of Palms Casino Resort into the market under new ownership (the San Manuel Band of Mission Indians).