Analyst predicts good 2025 for igaming, Macau-centric stocks, less so with Las Vegas casinos

Monday, January 27, 2025 8:42 PM
Photo:  Shutterstock
  • Buck Wargo, CDC Gaming

Gaming analyst Chad Beynon of Macquarie Group is telling investors that while gaming stocks trailed the broader market in 2024, he sees 2025 as “good” for the industry. He likens it to the first three years of President Donald’s Trump first term and ranked online gaming and Macau at the top of the list. Las Vegas casinos, however, are “less attractive.”

In 2024, gaming stocks sustained a median decline of 2% and on average rose 4%. That underperformed the S&P (+23%) and Russell 2K (+11%), along with broader entertainment, such as hotels, movies, airlines, cruise, and leisure for the second year in a row and for six of the last eight years, Beynon said.

“While this is more causation versus correlation, in the past eight years, it was President Trump’s first year in 2017 and third year in 2019 in which gaming outperformed indices,” Beynon said in a note to investors. “It failed to beat them in the last four years from 2021 to 2024, as well as in 2020 when gaming was essentially closed. Despite gaming stocks having 75% O/P analyst ratings, we believe the sell/buy-side tone is extremely bearish. We believe 2025 could be a year of positive estimate revisions and valuation re-ratings.”

While they expect “winners and losers” in each sub-sector, Beynon said the investment order is digital, Macau, suppliers, Las Vegas casinos, and regional casinos. Their top large-cap picks are DraftKings, Flutter, Wynn Resorts, and Light & Wonder. Their small- and mid-cap picks include Red Rock Resorts, Golden Entertainment, Gambling.com Group, Genius Sports, and Century Casinos.

“Our out-of-consensus views include higher Macau gaming revenue beginning post-Chinese New Year, better regional gaming revenue in the first quarter, and higher non-U.S. digital growth,” Beynon said. “Regional gaming re-rate as non-digital gaming companies are trading at 7.3 times EV/EBITDA.”

Breaking down each category, starting with online gaming and sports betting at the top of the list, Beynon said after three years of top-line industry growth of 40% to 70%, 2025 should slow to 25%. He said several companies are reaching the Rule of 40 – combined growth rate and profit margin that makes them attractive to investors – that should keep momentum and software analysts engaged.

“Moreover, while we assume negligible legislation, we expect at least six bills to be introduced in the next two months. We think lower legislation will hurt growth, but lead to bottom-line operating leverage and beats for the group.”

As for Macau, while 2024 gaming-revenue growth of 24% year-over-year (down 23% versus 2019) was about 400 basis points below market expectations and shares underperformed at negative 5%, Beynon believes 2025 “consensus remains too bearish,” given potential tariff impact and a sluggish Chinese consumer.

“China values Macau and continues to endorse the destination,” Beynon said. “In 2025 with gaming revenue consensus of 6%, we believe there are opportunities for outperformance as early as Chinese New Year. Beyond the first quarter, we expect healthy flow-through, which would lead to EBITDA surprises. With multiples at 8x 2025E, Macau looks attractive, with Wynn and Las Vegas Sands having the most stock upside.”

Suppliers are ranked No. 3, with the insight from Beynon that new innovation and product continue to drive industry revenues. Almost 80% of gaming revenues are derived from slots. He added that they witnessed healthy domestic unit sales in 2023 and 2024 and expect this to continue.

“We believe elevated investment dollars for Light & Wonder and Aristocrat in addition to corporate leadership and structural changes at several competitors sets up opportunities to execute. For Light & Wonder, a new multi-year target could drive multiple expansion.”

Las Vegas looks less attractive, given negative industry and company growth in 2024, and Beynon’s expectations are for this to continue in 2025, particularly in the first quarter. “We prefer mid-high portfolios, but also expect more mergers and acquisitions, given subdued REIT activity in 2024.”

When it comes to regional gaming, consensus expectations are low for the sector, as are valuation multiples Beynon believes there will be several winners in this sector and 2025 will be a deleveraging year. Top regional names include Churchill Downs, Century Gaming, Golden Entertainment, Red Rock Resorts, and Penn Entertainment.

In a further breakdown, Beynon called Wynn a premium luxury value stock with an irreplaceable brand and locations, as well as having undeveloped assets and construction in progress in the UAE. He expects that Wynn “should greatly benefit” from 6% to 10%+ Macau market growth in 2025 earnings, luxury positioned assets in Las Vegas, and Wynn Al Marjan Island in the UAE, which may not have competition for several years.

MGM remains a top value pick with a current share price near a 52-week low), upcoming BetMGM updated views, and higher-end consumer exposure, Beynon said. For digital, 2024 earnings are on track to generate almost $2.5 billion in revenue, but a lack of profitability in 2023 and 2024 remains a focus area.

“While the company attempted to acquire its JV partner in Entain in 2021, we believe likelihood could increase given management transition, current share price, and potential synergies.”

Following the success of Red Rock’s Durango Casino & Resort with a 15% return in 2024 and relatively stable same-store trends, Beynon believes the quality of product and the level of service will play well in this economy with discerning customers.

“With seven large projects currently open and ownership of all the real estate, Red Rock Resorts can come close to doubling this by 2030 earnings with projects including Inspirada, Sky Canyon, and others.”