In a September 22 investor note, Deutsche Bank analyst Steven Pizzella conceded that Las Vegas “has been relatively weak.” He attributed this to “a weaker than normal lower-end leisure customer, which we believe is not just idiosyncratic to Las Vegas.”
He also blamed “the perception, and in some cases the reality, of a lack of value” at Las Vegas Strip casinos, as well as the drop-off in international tourism.
That said, “We believe there are reasons to be cautiously optimistic as the summer heat eases.” For one, there was modest improvement in revenue-per-available-room trends. For another, the slate of upcoming convention and group events looked potent.
With the start of NHL season and the resumption of Vegas Golden Knights action, Pizzella thought some Canadian customers, who have been shunning Sin City, might return. He also cited anecdotal evidence that operators were attempting to better their image via value propositions.
Even so, two of the three major operators saw their third-quarter cash-flow projections slump in Pizzella’s view. The lone exception was Wynn Resorts, unchanged at $194.9 million.
Less fortunate were MGM Resorts International and Caesars Entertainment. The latter’s third-quarter number was revised downward to $423.4 million from $428.1 million, while MGM’s projection declined from $649.9 million to $633.1 million.
“Overall, while Las Vegas trends are currently the relatively weakest across gaming, we do believe that has been largely reflected in the recent valuations,” Pizzella resumed. He stuck with a Buy rating on Caesars, saying that strong regional performance made for an attractive risk/reward scenario.
On the subject of regional play, Pizzella found it still robust. He cited “consumers continuing to prioritize local drive-to casinos … equity markets stabilizing, and … still relatively easy comparisons.”
July saw regional grosses improve two percent and August so far was 3.6 percent ahead of 2024. “We would expect the momentum to continue into September, given the easy relative comparison, partially due to weather, before trends start to normalize, with comparisons beginning to stiffen in the fourth quarter,” Pizzella forecast.
Using Pennsylvania and Ohio as a microcosm, Pizzella saw an uptick in promotional activity, led by Caesars. Also increasing promos was Penn Entertainment, but not Boyd Gaming, which opted “to leverage product quality in lieu of promotional competition.” Still, the prevailing promotional climate was described as rational.
The one regional disappointment appeared to be MGM, as Pizzella shaved its cash-flow projection from $298.4 million to $290.6 million. Penn remained almost flat, going from $476.2 million to $476.4 million.
Positive regional performance was seen from Caesars, whose cash-flow forecast went from $496.1 million to $498.1 million. Likewise Boyd, climbing from $192.6 million to $197.3 million in the third quarter.
