Wall Street Bets: Analysts take on Red Rock Resorts, NY licensing, Las Vegas Strip revenue, and more

April 1, 2024 12:03 PM
Photo: CDC Gaming Reports
  • Rege Behe, CDC Gaming Reports
April 1, 2024 12:03 PM

Wall Street Bets is a roundup of recent notes from analysts covering the gambling industry.

Red Rock Resorts estimates

J. P. Morgan analyst Joseph Greff April 1 issued a statement on Red Rock Resorts.

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“We are raising our 1Q24, full-year 2024 and 2025 estimates on stronger than previously modeled Durango property estimates (recall this property opened in early December of last year),” Greff wrote.  “We now project 1Q24 Las Vegas locals property level EBITDA of $242 million (versus 4Q23’s $221 million), which assumes a ~$38 million contribution from Durango and a 6% same-store EBITDA decline.  Consensus 1Q24 EBITDA is $221 million, so we are looking for nice upside from Red Rock Resorts in the 1Q24.  For full-year 2024 and 2025, we now project property level EBITDA of $919 million and $942 million, versus Consensus’s $883 million and $926 million, respectively. We don’t think our new estimates are the best-case scenarios, so there could be additional upside.

“We continue to like the risk-reward in Red Rock Resorts and expect Red Rock Resort’s 1Q24 and outlook to shine versus peers when it reports earnings sometime next month.”

New York casino licensing

Per Jefferies analyst David Katz in a March 31 note, “New York gaming officials indicate casino license approvals could be delayed until late 2025. According to the executive director Robert Williams, regulatory issues including citywide zoning changes and environmental reviews could delay the outcome. The delay is expected to benefit operators, particularly Las Vegas Sands given a pending lawsuit. Currently, our view is MGM and Resorts World are logical choice winners, with the third one up for grabs.”

Super Bowl effect on Las Vegas Strip

Analyst Barry Jonas of Truist March 28 commented on Las Vegas Strip gaming in February.

“Hosting the Super Bowl for the first time,” Jonas wrote in a statement, “February Strip gaming win rose +12% year-over-year  – and while baccarat win ($181 million) was significant, underlying normalized/ex-baccarat GGR were healthy at +14%/+1% year-over-year. Visitation trends were very strong with Strip revenue per available room/average daily rate +46%/+43%. Locals continue to grow (+4% in February & quarter-to-date), though this is mostly driven by Durango with possible cannibalization elsewhere. Net-net, we think today’s results prove out company commentary around a successful event. We note that quarter-to-date GGR is trending above our estimates across the Strip (Buy-rated MGM & Caesars) and Reno (Monarch Casino & Resort — Hold).”

Bally’s Corp default rating

In an April 1 note, Fitch Ratings downgraded Bally’s Corporation’s Issuer Default Rating to ‘B’ from ‘B+’.

“Fitch has also downgraded the rating on the senior secured term loan B and revolver to ‘BB’/’RR1’ from ‘BB+’/’RR1’and the unsecured notes to ‘CCC+’/’RR6’ from ‘B-‘/RR6’,” the note stated. “The rating outlook is Negative.

“The downgrade reflects the relatively high leverage that is above Fitch’s rating downgrade sensitivities and are now expected to be higher for longer; execution risk in the financing and development of the Chicago development; as well as other potential development opportunities, and continued drag on EBITDA at the North America Interactive segment. This is offset by a diverse portfolio of regional gaming properties, the stable International Interactive business, an expected reduction in losses in the North America Interactive business and adequate liquidity.”

Aristocrat/Light & Wonder intellectual property dispute

On March 25, Jefferies hosted an expert call with University of Nevada, Las Vegas Professor Mary LaFrance, an intellectual property lawyer, focusing on Aristocrat’s lawsuit against Light & Wonder.

According to Jefferies analyst David Katz, “While neither we nor our expert predicts a winner at this stage, our take is that the process could take considerable time to result in meaningful impact, while remaining an overhang for Light & Wonder shares pending resolution. … For background, this case includes Aristocrat claiming a number of employees resigned to join Light & Wonder and in their work at Aristocrat had valuable trade secrets that have been misappropriated and now used by Light & Wonder, notably its Dragon Train game, which has proven highly successful in Australia and is presently being released in the U.S. Aristocrat has been highly successful with its Dragon Link game both in Australia and the US over the past several years. Its claim is for a preliminary injunction and a temporary restraining order.

“Our impression from our expert’s commentary is that Light & Wonder should be able to roll out Dragon Train even as Aristocrat pursues a temporary restraining order or preliminary injunction. However, these would require a discovery and non-disclosure process that presents a set of complexities that could take time to resolve.”