Third-quarter earnings season for the gaming industry kicks off in earnest Wednesday when Las Vegas Sands reports what’s happening in Macau and Singapore, while Boyd Gaming on Thursday gives the first glimpses of its Las Vegas locals properties and U.S. regional markets.
Shaun Kelley, an analyst with Bank of America Research, said his firm is in line with consensus in Macau and expects upbeat tones from operators.
“Given the recent stimulus news and better-than-expected Golden Week trends, sentiment is likely to be positive on the calls, especially for Sands.” Kelley said. “We remain more sanguine, however, as Macau fundamentals never really reflected the underlying macro softness.”
Overall, Morgan Stanley said that third-quarter brick-and-mortar trends were sluggish, while digital has been robust. Among Morgan Stanley’s key takeaways, high-frequency data across gaming has been soft, with Las Vegas, both the Strip and locals casinos, showing signs of deterioration. Regional casinos are flat, while Macau’s recovery is plateauing.
On Sands, Morgan Stanley said the operator will be wrapping up the final renovations on the third tower in Singapore at the same time that the Londoner disruption in Macau should be subsiding. As a result, market share and EBITDA should be poised to grow in both markets. Morgan Stanley modeled 11%-12% growth in revenue/EBITDA in 2025.
“In Macau, incremental competition from new properties could dampen market share, but we believe investors are more focused on forward indications, where trends during October Golden Week and stimulus could point to even stronger trends ahead,” Morgan Stanley said.
Joseph Greff, an analyst for J.P. Morgan, said for the third quarter they’ve bumped their Macau property-level EBITDA to $572 million, up from $556 million, a gain of 3%. This estimate change is underpinned by an assumption that its third-quarter gross gaming revenue market share was about 24%, roughly equal to its second quarter share, Greff said. This increases their Macau gaming revenue about 2%, which is now down 1.5% sequentially, versus their prior assumption of a 3% sequential decline.
“We also assume slightly lower promos/premium mass reinvestment on a sequential basis,” Greff said. “We think this was a mostly market-wide trend and driven, in some part, by seasonally stronger summer base mass market mix.”
With its contra revenues as a percentage of total gaming revenue now at 21.5% versus 22.3% previously and 22.3% in the second quarter and 20% in the first quarter, Greff said they’re lowering their third-quarter Marina Bays Sands property-level EBITDA to $508 million. That’s down from their prior $512 million to account for some property-level room-renovation disruption. They see fourth-quarter EBITDA up sequentially.
“Looking ahead, we are confident/optimistic that in Macau, Las Vegas Sand’s Londoner renovation disruption will meaningfully abate from here, with the newly renovated casino already now open and hotel rooms and other revenue generating inputs opening on a staggered basis in the fourth quarter and into 2025, which should allow for Sands to achieve above-Macau-peer growth in 2025,” Greff said. “We think this gives the shares enough momentum to make this an interesting idea heading into a much better 2025 versus 2024 in Macau for Sands. We have been encouraged by the strong Golden Week gaming revenue results, as well.”
Greff said Sands is hosting investor events in Singapore in November and in Macau at some point in the spring. “We believe, at the very least, the increased visibility to investors will help normalize the still undemanding valuation multiple whether looking at it in the aggregate or isolating for Macau or Singapore.”
Between what they see as a minimum mid-teens growth rate for Sands in Macau in 2025, Greff said they’re modeling $2.8 billion of property-level EBITDA and presently view buy-side expectations as reasonable. They view Singapore as an attractive market with about 7% growth in 2025, following mid-teens growth in 2024, with medium-term growth coming from capital expenditures and expansion there.
Greff said they have a price target of $60, up from $53. The stock closed at $51.75 on Tuesday.
In the U.S., Morgan Stanley said online-gaming data has been robust, echoing comments from Flutter at their analyst day, and the firm has raised its online sports betting and igaming total area market. Over the past 30 days, gaming stocks have been mixed, with Wynn Resorts the best and Penn among the worst performers.
Morgan Stanley is focusing on companies with growth opportunities, citing DraftKings, Boyd, Sands, and Wynn, with upside of 25%, 20%, 16%, and 7%, respectively.
“Gaming stocks have performed well over the past 30 days going into earnings amidst lower rates and China stimulus,” Morgan Stanley said. “Despite the rally, valuations are still below history as investors remain skeptical over rates spurring stronger consumer spending in gaming.”
Morgan Stanley raised its third-quarter estimate for DraftKings based on state-level data and an expectation for initial customer acquisitions at the start of the NFL season going well. While weaker hold in October may keep management more conservative in the fourth quarter, Morgan Stanley wrote it still believes management can provide initial 2025 estimates that point to higher revenue than consensus.
Morgan Stanley said underlying trends in Boyd’s markets have been “lackluster,” but trends have not deviated materially from recent quarters.
“In our view, this stability could serve as a positive on its own versus peers,” the firm noted. “However, the more likely catalyst could come from details on the recently approved property development in Norfolk, Virginia, where we estimate an NPV = $2/share.”
On Wynn, Morgan Stanley said that with its investor day on the United Arab Emirates in the rear-view, focus returns to fundamentals. “While Vegas has been choppy and Wynn typically has outsized exposure to baccarat, which has been weak, we still see their higher end positioning and reinvestment supporting fundamentals relative to the market.”
In Las Vegas, Kelley cited softness from Formula 1 and broader weakness in room-rate surveys for the fourth quarter “is well understood, but we think the third quarter could also be softer than expected.”
Kelley said they are 2% below the consensus driven by MGM Resorts International where they are about 4% below consensus. For regionals, they are in line with the consensus and think areas of increased competition and the Southern markets are areas of softness.
“Our Vegas Locals estimates are slightly below the Street to reflect modestly slower gaming revenue data,” Kelley said. “We expect cautious company commentary around the fourth quarter on both the Strip and for locals’ casinos.”
