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Casinos in the region, as per Deutsche Bank analyst, seem to maintain stability

After the exit of Carlo Santarelli, the gaming portfolio at Deutsche Bank is now under the management of Steven Pizzella. His expanded responsibilities encompass Brightstar Lottery, Boyd Gaming, Caesars Entertainment, DraftKings, Golden Entertainment, Gaming & Leisure Properties, Light &...

Casinos in the region, according to a Deutsche Bank analyst, appear to be holding steady.
Casinos in the region, according to a Deutsche Bank analyst, appear to be holding steady.

Casinos in the region, as per Deutsche Bank analyst, seem to maintain stability

Casinos and Gaming Industry: A Mixed Picture Ahead

In a recent investor note, Deutsche Bank analyst Steven Pizzella has presented a nuanced outlook for the global gaming industry. While the short-term picture shows some challenges, the long-term prospects are promising, particularly for digital gaming and international markets.

The Las Vegas Strip, a key player in the gaming industry, is currently facing subdued sentiment. This is due to declining visitation and weaker revenue metrics, with average daily rates expected to face mid- to high-single-digit compression over the summer months. This softness in consumer leisure spending is affecting the casino and hospitality segments on the Strip.

However, Pizzella maintains a bullish group outlook for 2026 and 2027. This optimism is driven by growth in occupancy, room rates, and food and beverage revenue. The long-term perspective shows appeal to investors due to predictable fixed revenue streams that grow at low to mid-teens compound annual growth rates, with 60%-70% of gaming businesses having recurring revenue models.

Digital gaming shows strong momentum, with Caesars Entertainment highlighted for robust EBITDA and handle growth in digital sports betting and iCasino segments. The digital segment is on track to deliver substantial EBITDA growth through 2026, demonstrating increasing profitability and volume.

Regional markets are also showing signs of improvement. An 8.5% rise in rated gaming theoretical win (Theo), the best in three years, has been noted by Pizzella, although partially driven by marketing efforts.

Macau, another significant player, is expected to see growth, with Deutsche Bank projecting a 6.7% gaming revenue increase for 2025, followed by further gains in 2026, signaling a positive trend for international gaming hubs.

Despite these positive signs, Pizzella acknowledges various risks causing rising uncertainty. These include consumer volatility, unstable international politics, particularly potential rising tensions in China, and labor costs, which had been increasing for two years but are now seen as moderating.

Pizzella sees Caesars Entertainment as a long-term investment, due to its new casinos in Nebraska and Virginia, upgraded Caesars New Orleans, and monetization of non-core assets. He also views Station Casinos as a strong investment due to its strong 20225 and 2026 forecasts, organic project pipeline, and recent tax cuts on tips.

In the digital gaming sector, Pizzella perceives Sportradar and Genius Sports as long-term secular winners in the sports betting data provider market, with recurring revenue streams comprising 60% to 70% of their income base. Major data rights are locked in for the medium to long term on average for these companies, providing visibility into their cost basis.

Pizzella also views Caesars' digital operations as undervalued and is optimistic about Caesars' 2026 group-business calendar and renewed Caesars Windsor management contract starting next year. He prefers to invest in gaming companies with idiosyncratic free cash flow inflections at undemanding valuations.

The United States gross domestic product is forecast to slow down in the latter half of this year. Despite this, the gaming industry is expected to remain balanced over the next twelve months due to these various risks causing rising uncertainty.

There is an upward trend in online sports betting, with a 15 percent acceleration in March. Deutsche Bank research shows a 4.1 percent increase in regional properties in May, after dipping one percent across the preceding four months. The analyst perceives firmness in the Las Vegas locals sector, which is underpinned by stiff barriers to entry for would-be competitors. The jobs market is considered healthy, adding to optimism for Station Casinos.

In conclusion, while the near-term picture for the gaming industry shows some challenges, particularly in key markets like Las Vegas due to current economic and consumer spending trends, the long-term prospects are promising, with strong growth prospects in digital gaming and international markets.

1) Despite the current subdued sentiment in the Las Vegas Strip's casino and hospitality segments, Deutsche Bank analyst Steven Pizzella sees promise in the long-term prospects for the gaming industry, particularly for digital gaming and international markets.

2) Pizzella perceives companies like Caesars Entertainment and Station Casinos as long-term investments, considering their strategic expansions, strong forecasts, and undemanding valuations, while also viewing Sportradar and Genius Sports as long-term secular winners in the sports betting data provider market.

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