Two top Wall Street gaming analysts visited the Las Vegas Strip last week, then published their findings today, gleaned from meetings with top casino management. Joseph Greff of J.P. Morgan and Carlo Santarelli of Deutsche Bank each reported separately.
Santarelli felt that “the tone of the meetings remained constructive, though the burden of more challenging comparisons is evident across all regions of gaming, with Macau being the lone exception.”
He found the Las Vegas locals market “well positioned for stability,” but said regional casinos confront a “tougher outlook.”
The Deutsche Bank boffin wrote that, aside from Caesars Entertainment, catalysts for non-Macau-facing operators were difficult to identify. He added though that both Caesars and MGM Resorts enjoyed additional upside from their Strip exposure.
His J.P. Morgan counterpart, Joseph Greph, came away from his own meetings with a similar, but more optimistic, viewpoint.
“In terms of the stocks, we see the biggest upside/more favorable risk-rewards in the Macau-centric equities, where loss of share price momentum over the last month-plus has created attractive entry/add point levels, despite continued recovery in that market.” He observed that stocks facing the Las Vegas Strip and locals market also had value. In spite of macroeconomic concerns, Greff said these suffered “no loss in fundamental performance.”
Pivoting back to Macau, Greff cautioned there is “plenty of room to get back to pre-pandemic levels. “ Still, he noted a number of positive metrics: hotel rooms returning to the active inventory, a ramping up of ferry and airline traffic, and visitation improving across the board. One unnamed operator told Greff he could achieve 2019-level cash flow from as little as 70 percent of 2019 visitation.
Santarelli, on the other hand, found operators skeptical that 2019 volumes of foot traffic could be regained in 2023.
“Despite the strengthening,” Santarelli noted of visitation, “management teams remain of the view that friction in the transportation system continues to serve as a considerable impediment. Airline capacity, ferry capacity, bus capacity from [Hong Kong], and airline-ticket prices, due in part to the limited capacity, were all noted as transportation-related bottlenecks in the system, which, while improving, remain a headwind to achieving 2019 visitor-volume levels.”
Greff found the Las Vegas Strip unchanged, i.e., busy, “as evidenced by traffic, cab lines, crowds everywhere, and waits for restaurants,” despite some week-to-week volatility. Average daily room rates were beating 2022 numbers, while Caesars, for one, was seeing consistently good group visitation, with banquet revenues “meaningfully” higher.
Santarelli identified several positive catalysts for the Strip, including eight Las Vegas Raiders’ prime-time games, Formula One racing in November, and the September opening of the $2.3 billion MSG Sphere. Fontainebleau’s December opening he would only describe as “potentially” on schedule.
Like Caesars, Wynn Resorts and MGM have Culinary Union contracts that expire at the end of this month. Greff predicted these would receive brief extensions through July, so that all three major operators can wind up their collective-bargaining agreements simultaneously. “Contract negotiations appear to be in the early stages and we see a normal process to resolution,” he wrote, saying that wage increases would probably be front-loaded into the first year of the new pacts.
Santarelli was of very similar views, adding that probable four-year contracts would be prefaced by “some theater in July from the unions.” He quasi-cryptically added that “use of technology” by casino owners would mitigate the cost of wage increases.
Casino bosses told J.P. Morgan’s Greff their regional revenues are “consistent and stable,” particularly for MGM’s large non-Vegas casinos, such as MGM National Harbor and Beau Rivage.
Closer to home, tourist trade is helping locals casinos in Las Vegas keep pace, thought Greff. Population growth was credited as well, along with “spillover from a still-bustling Las Vegas Strip.”
Santarelli seconded this observation. “Despite a broader slowdown in housing, the housing environment in Clark County remains strong and we believe this will continue to serve as a key barometer for Las Vegas locals casino patronage and spend.” Two catalysts he identified were new housing and apartment starts to alleviate tight inventory and the aforementioned inventory driving up prices.
He described the pace of locals-casino revenue as “steady, with patches of softness and strength, akin to prior quarters. While we believe gaming trends remain largely firm, we continue to expect outperformance, relative to gaming revenue, in the F&B and hotel-room segments, as out-of-town guests continue to drive demand for rooms and spend on amenities during their stay.”
The Deutsche Bank analyst found locals-casino management unconcerned about labor issues, with wages no longer pressured upwards. Jobs can now be filled in as little as six weeks, compared to the previous six months, due to an easing in the labor market.
Greff finished with two random observations: Las Vegas Sands is likely to repurchase $300 million in stock and New York state’s casino-concession awards aren’t the subject of much consensus, thus “the process for issuing the three downstate gaming licenses likely will continue to take some time.”
Santarelli was, if anything, even gloomier about the Empire State, opining that the casino-award process appeared likely to drag on into 2025, though he believed a jilting of existing VLT casinos MGM Empire City and Resorts World New York was “unlikely.”
He was also surprised to find casino operators skeptical of an Oakland Athletics move to Las Vegas. Without mentioning the A’s dumping of Station Casinos in favor of a partnership with Bally’s Entertainment, he wrote, “There have been a series of mixed messages, with little to no formal planning having been announced. We believe this has created the impression that the A’s could potentially be posturing, waiting for Oakland to change its stance and work with the A’s on a proposal to keep them in town.”
Lastly, he concluded, an A’s transplant would drop them from a top-10 media market in the Bay Area to the 40th-largest one in the U.S., another disincentive to move.
