J.P. Morgan issued a note to gaming investors Monday citing “decelerating trends as consumer spending and macro economy slow.” Those factors and others lead analysts to lower expectations for share prices and valuations for the second half of 2024.
Despite those concerns, analyst Joseph Greff likes Caesars Entertainment, Wynn Resorts, and Red Rock Resorts stocks. In addition, he cited DraftKings as online sports betting revenue grows with the arrival of the football season.
Greff said the Las Vegas Strip had a mixed second quarter. EBITDAR “largely beat consensus estimates on better non-gaming spend, as table games drop and slot handle were flat to down year over year.” Expectations for the second half of the year have come down, based partially on MGM’s commentary around soft sales for the November F1 race and increased consumer slowdown concerns, Greff said.
U.S. regional gaming results “were fine” in relation to lower revenue/margin expectations, while the Las Vegas locals market remains solid at the high-end.
“We like MGM and Caesars for their Las Vegas Strip exposure and undemanding valuations, with MGM sporting an attractive and unpriced growth pipeline, while Caesars has underappreciated free-cash-flow generation and ability to de-lever, with icasino profitability inflection and asset monetization continuing. Red Rock Resorts continues to provide relatively stable growth, given Durango (Casino & Resort) momentum, favorable Las Vegas locals market dynamics, and recent insider share purchases.”
J.P. Morgan said third-quarter room rates through September for Las Vegas are running 10% higher year over year for midweek, 1% for weekends. That translates to a 6% increase overall.
MGM rates are +15% weekday and +2% weekend (+9% overall); Caesars’ rates are +1% weekday and -7% for the weekend (-3% overall); Wynn rates are +7% weekday and +6% for the weekend (+7% overall); Venetian/Palazzo rates are -1% weekday and +19% for the weekend (+7% overall), J.P. Morgan reported.
Greff said they like Wynn for its United Arab Emirates resort that’s under construction, which he added “doesn’t seem priced in.” He also cited Wynn’s assets in Las Vegas and Macau.
Greff said there’s “negative sentiment” within U.S./Macau gaming, where expectations remain low and even worse for Macau, given eroding sentiment related to China macroeconomic and geopolitical concerns. Macau gross gaming revenue results “were generally mixed,” with increased market-wide promos generating reduced property-level margins and/or less-than-margin-enhancing gaming-revenue market-share shifts.
As for Las Vegas Sands in Macau, Greff sees value for patient investors, “as it brings a more competitive room product in Macau later this year, with low expectations and 2025 driven by a likely Londoner-driven inflection.”
U.S. online sports betting and igaming revenue growth and ramp to profitability remain attractive despite the Illinois tax-rate increases, Greff said. They don’t see a high probability of tax-rate contagion to other states.
“We also like DraftKings, as it’s the only pure play for U.S. online sports betting and igaming with clear competitive advantages and operating momentum, with a valuation that is attractive on our 2026 projections – low P/E with or without its sizable growing excess cash build and decent free cash flow yield,” Greff said. “We like it heading into the football season, a seasonally important period for online sports betting, and gaming-tax-surcharge uncertainty/risk is behind us post DraftKings’s pivot.”
Caesars closed at $36.80 on Monday and has a price target of $54. MGM closed at $40.07 on Monday and has a price target of $57. DraftKings closed at $34.41 on Monday and has a price target of $48. Red Rock Resorts closed at $56.18 on Monday and has a price target of $69. Las Vegas Sands closed at $40.85 on Monday and has a price target of $53. Wynn Resorts closed at $76.60 on Monday and has a price target of $101.
