Bank of America released its scorecard for first-quarter earnings in which six gaming companies beat expectations, four missed, and one was in line during the first three months of 2024.
“Stocks were volatile, with 8 of 11 declining on earnings day and material moves lower for Boyd Gaming, Las Vegas Sands, Penn Entertainment, and Red Rock Resorts,” Bank of America analyst Shaun Kelley wrote. “The key themes for the first quarter were: softness and competitive impacts in Las Vegas locals; poor weather in regionals, but margins better than feared; weak and peak Vegas Strip gaming, but hotel resilience; and another beat and raise for DraftKings coupled with more challenges for Penn and ESPN Bet.”
After the release of the scorecard, BofA downgraded Penn to neutral and upgraded Red Rock Resorts to neutral.
Penn reported first-quarter revenue/EBITDA of $1.61 billion/$256 million versus BofA’s $1.59 billion/$260 million. Interactive EBITDA loss of $196 million was in line with the firm’s loss of $200 million, but below guidance of minus $170 million.
“Penn reduced digital revenue and EBITDA expectations materially and lowered core property EBITDA guidance, driving the sell-off in shares,” Kelley wrote. “These changes highlight continued execution challenges for ESPN Bet: weaker market share due to lower spend per user; high fixed costs that put further risk on fourth quarter and 2025; Penn’s balance sheet. With our thesis on ESPN Bet in jeopardy, we see Penn increasingly as a deep value/turnaround stock.”
Red Rock Resorts reported first-quarter revenue/EBITDA $490 million/$210 million versus BofA’s $510 million/$210 million.
“Red Rock shares were down, as sales missed expectations with Durango (Casino & Resort) upside increasingly priced into the stock and cannibalization a risk,” Kelley said. “We estimate the rest of Red Rock Resort’s portfolio was minus 7% year over year. That said, Red Rock doesn’t believe it is seeing the same consumer or competitive weakness Boyd called out, while comps get much easier in the market from second quarter on. After a correction, we upgrade shares to neutral, but lower our price outlook to $55 on slightly lower estimates.”
Wynn Resorts reported first-quarter revenue/EBITDA of $1.86 billion/$647 million versus $1.87 billion/$622 million and the Street’s $1.80 billion/$600 million. Macau EBITDA was $340 million and after adjusting for hold, EBITDA was $320 million, slightly above its expectation of $315 million.
“We estimated the share was 14% and in-line with our expectations,” Kelley wrote. “In Las Vegas, EBITDA was $246 million and in-line with our above-consensus $247 million. Non-gaming spend came in ahead of our expectations, while gaming spend was slightly light, driven by year-over-year declines in slot volumes. Overall, our forward estimates move slightly lower, with higher Macau estimates offset by lower Las Vegas estimates.”
BofA has a Wynn price outlook of $115 based on approximately 10x its 2024 EBITDAR estimate. That’s roughly in line with its long-term average, which they said is justified, given Macau’s recovery potential, strength in Las Vegas, and stable regional trends.
Upside risks for Wynn include faster than expected recovery in Macau and improvements on the Las Vegas Strip. Downside risks are slower-than-expected recovery in Macau and domestically, higher-than-expected operating leverage, and increasing financial leverage, Kelley said.
DraftKings reported a first-quarter beat and fiscal-year guidance raise. BofA is raising its 2024 EBITDA estimate by $38 million to $498 million to reflect the first-quarter beat and a larger total market area primarily in igaming.
BofA reiterated buy and a $54 price outlook.
BofA has a $50 price outlook for Caesars Entertainment based on approximately 7.5x 2024E EV/EBITDAR. This multiple is slightly below Caesars’ long-term historical average and mid-cycle multiple, Kelley said.
Risks to the upside mainly revolve around management’s ability to significantly exceed its forecast, which could come from de-levering; late-cycle growth in Las Vegas; digital-gaming share gains; and opportunistic asset sales, land sales, joint ventures, or licensing deals.
Risks to the downside stem from high-financial and operating leverage; a lack of meaningful growth in digital market share; and potential margin deterioration, Kelley wrote.
The price outlook for Boyd Gaming is $68, based on approximately 7x 2025E EBITDAR. The valuation multiple is in line with the historical multiple range for regional gaming companies of 5-12x, Kelley said.
Risks to the upside are continued margin improvement; balance-sheet deleverage quicker than anticipated; a significantly deleveraging acquisition or transaction; and sports-betting upside.
Risks to the downside are continued impacts of COVID and a broader economic slowdown; slower-than-anticipated deleverage; and execution on integration from recent transactions.
BofA has a $50 price outlook for MGM Resorts International based on approximately 7x its 2024 EBITDAR estimate. This multiple is a discount to MGM’s historical average since 2010, due to the company’s evolving corporate structure.
Upside risks are a stronger-than-anticipated recovery in Las Vegas; sports betting/igaming ownership changes and improving consumer sentiment; and its majority ownership stake in MGM China.
Downside risks are execution risks related to sports betting and igaming; increased Strip promotional competition; and a slower-than-expected recovery in Macau and the U.S.
The price outlook for Churchill Downs is $145, based on approximately 13x 2025E EBITDA. This is a premium on both Churchill’s historic average valuation and domestic gaming peers, which Kelley said they view as warranted, given “the one-of-a-kind and irreplaceable nature of the Kentucky Derby; the substantial future growth pipeline coming via the company’s HRM expansion and developments; and an established, unique, and profitable online growth platform in TwinSpires.”
Downside risk to its price outlook comes from slower and less profitable development of HRM facilities; failure to maintain elevated EBITDA margins; and a smaller valuation premium being awarded to category-defining consumer companies.
Upside risk is driven by quicker and more meaningful EBTIDA growth than anticipated; better return on investment on project cap expenditures; and continued multiple inflation across consumer stocks, Kelley said.
VICI Properties reported first-quarter revenue/AFFO of $952 million/$583 million, largely in line with estimates of $946 million/$583 million. VICI reiterated their full-year AFFO/share guidance and announced a $700 million investment in the Venetian through their Property Growth Fund.
BofA’s $34 price outlook is based on an approximate 7% cap rate. The valuation reflects higher interest rates and is closer to other category-leading triple-net REITs reflecting VICI’s growth prospects following the MGM Growth Properties transaction.
Upside risks are new accretive mergers and acquisitions, both within and outside of the Caesar’s portfolio, as well as non-gaming assets. Downside risks to the price outlook are the inability to execute mergers and acquisitions, overexposure to one operator, and general interest-rate risks.
