Analysts have all but given up trying to explain the past week’s gaming stock declines, which seem largely reflective of investor concern over possible repercussions from the Covid-19 coronavirus on the economy.
How else do you rationalize International Game Technology, one of the industry’s three largest slot machine companies, with a market capitalization of $1.5 billion, watching its stock price decline more than 60% over the past 10 days and fall to below $6 a share?
The answer? IGT is headquartered in Rome and draws roughly 30% of its quarterly revenue from Italy as the primary provider for the government-run lottery. The country is second only to China in the number of coronavirus cases and was put on a total lockdown by its Prime Minister. IGT rose 34.5% Tuesday to close at $7.51.
Meanwhile, how does regional casino operator Eldorado Resorts, which is in the process of buying Caesars Entertainment in an industry-record $17.3 billion transaction, lose almost 23% of its value in a single trading day, falling to just 36% of its analyst-predicted price target?
Eldorado rebounded Tuesday by almost 10% after the company sold the Montbleu Resort in Lake Tahoe, eliminating one of the antitrust hold-ups to completing its deal with Caesars.
As for the rest of the industry, there aren’t many clear answers.
“We believe most – if not all – may have thrown in the towel across our group on 2020 from a financial perspective,” Deutsche Bank gaming analyst Carlo Santarelli wrote Sunday in a research report to investors that explored the economic impact, both real and perceived, that the spread of Covid-19 has taken on the lodging, travel, tourism and gaming sectors.
A day later, each of the three major stock indices declined more than 7%. The Dow alone fell more than 2,000 points – a one-day record and the largest single-session percentage decline since 2008. The markets rebounded Tuesday, with the Dow up more than 1,600 points and the indices climbing just under 5%.
It’s been one step forward, two steps back for the gaming sector since January.
The roller coaster has wiped out virtually all the gaming industry’s 2020 financial forecasts in just the second week of March.
“While gaming real estate investment trusts, regional operators, and equipment suppliers could see results that somewhat mirror consensus,” Santarelli said. “It is unlikely (that) even the forecasts of regionals and suppliers hold up all that well.”
SunTrust Bank gaming analyst Barry Jonas said Tuesday that the impact to-date in regional casino operations “has been limited to markets experiencing a material outbreak (of the virus),” such as Washington, which has a large tribal casino market and card room casinos.
“Recent discussions with operators suggest positive trends across the regionals this past weekend, though we could see more mixed results on the Strip,” Jonas said.
The industry’s stock price challenges began with Macau. The coronavirus outbreak decimated January’s lucrative Chinese New Year holiday after travel restrictions were imposed by the Chinese government on its citizens. In February, Macau’s leaders ordered casinos to close for two weeks as travel in China continued to be impeded.
Macau gaming revenues were down 11% in January, 88% in February and are already off 75% in March, according to Hong Kong-based analysts.
MGM Resorts International, because it collects only 20% of its annual revenues from Macau, dodged the stock hit that both Wynn Resorts and Las Vegas Sands took in January. The other two operators each collect roughly 65% of their annual revenues from their Macau holdings.
But with coronavirus reaching the U.S., the investment community has begun to punish MGM.
“For MGM, it has been a case of whatever can go wrong has gone wrong over the last several weeks,” Santarelli said.
The company completed 2019 by selling Circus Circus and completing the sale/leasebacks of Bellagio and MGM Grand Las Vegas. MGM touted the prospects for an event-driven 2020 in Las Vegas that included the opening of the $2 billion Allegiant Stadium, April’s NFL Draft on the Las Vegas Strip, and several major conventions, such as this week’s CON Expo/CON AGG equipment tradeshow.
“The (next) series of events has been tough to comprehend,” Santarelli said.
On the day the company reported fourth-quarter and year-end results, MGM chairman and CEO Jim Murren said he would leave his positions before his contract expired at the end of 2021. A Dutch tender auction of the company’s stock had to be revised, and shares are still 13% below the low end of the public sale.
“The concerns around COVID-19 have both driven and exacerbated (MGM),” Santarelli said.
A week after announcing his planned departure, Murren sold 689,000 shares of stock in MGM for $22.154 million (between $32.15 and $32.17 a share). If he had waited until Monday, when the company hit its 52-week low at $17.53 a share, the value of the stock sale would have been reduced by more than $10 million.
Timing, sometimes, is everything.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at firstname.lastname@example.org. Follow @howardstutz on Twitter.