Stability Predicted for Local and Regional Casinos, According to Deutsche Bank Analyst's Viewpoint
Deutsche Bank analyst Steven Pizzella has painted a balanced picture for the gaming industry over the next twelve months, with positive momentum and stability being countered by numerous legislative, geopolitical, and economic risks.
According to Pizzella, regional and local casinos are expected to remain stable in this environment. The analyst highlights the drive-to market positioning of these casinos as a key factor in their resilience.
For major operators like Las Vegas Sands and MGM Resorts International, Pizzella's general assessment of the industry suggests a cautious optimism, tempered by uncertainty across all segments. While explicit details about his views on these companies are not provided, the overall tone of his analysis likely applies to them as well.
Online sports betting might be part of the positive momentum areas, but it still faces uncertainties due to regulatory and economic factors.
Pizzella sees a "healthy" underlying jobs market and a "reasonable valuation" as additional reasons for optimism regarding Station Casinos.
Deutsche Bank's gaming coverage has been taken over by Pizzella, who now oversees companies like Brightstar Lottery, Boyd Gaming, Caesars Entertainment, DraftKings, Golden Entertainment, Gaming & Leisure Properties, Light & Wonder, Las Vegas Sands, MGM Resorts International, Penn Entertainment, Station Casinos, Vici Properties, and Wynn Resorts.
Pizzella prefers to invest in companies with idiosyncratic free cash flow inflections at undemanding valuations. He views Sportradar and Genius Sports as long-term secular winners due to their recurring revenue streams and locked-in major data rights.
Caesars Entertainment is cited as an exemplar by Pizzella due to its potential positives, such as new casinos in Nebraska and Virginia, upgrades in Caesars New Orleans, and the monetization of non-core assets. Caesars' digital operations are perceived as undervalued by Pizzella.
Unstable international politics, particularly rising tensions in China, and tariffs' ability to hinder the return on investment from large capital projects are concerns for Pizzella, as well as the potential inflation of consumer prices.
Station Casinos is liked for its strong 20225 and 2026 forecasts, organic project pipeline, and expected benefits from recent tax cuts on tips. The upward trend in online sports betting, with a 15 percent acceleration in March, is noted, though comparisons remain tough over the next three months.
Pizzella sees firmness in the Las Vegas locals sector, which he attributes to stiff barriers to entry for would-be competitors due to population growth and recent legislative gains.
Deutsche Bank research shows that regional properties were up 4.1 percent in May after dipping one percent across the preceding four months. However, the US gross domestic product is forecasted to slow down in the latter half of this year, and consumer volatility and non-convention visitation to Las Vegas dropping 8.3 percent from 2024 are perceived as potential threats, with lower-end customers being particularly vulnerable.
Macau's revenue leapt 19 percent in June, but Pizzella wants more time to determine if the growth was driven by isolated events or not.
In conclusion, Pizzella's outlook for the gaming industry is one of balance, with areas of positive momentum and stability being offset by legislative, geopolitical, and economic risks. Regional and local casinos appear stable, while online sports betting and major operators like Las Vegas Sands and MGM Resorts International face uncertainties due to regulatory and economic factors. Caesars Entertainment and Station Casinos are seen as potential winners due to their strong forecasts, organic growth, and strategic moves.
The analyst, Pizzella, expects that regional and local casinos will maintain stability in the current market environment, with their drive-to market positioning being a key factor in their resilience. The finance sector's focus on online sports betting might offer a positive momentum area; however, it still faces uncertainties due to regulatory and economic factors.
