Regional casino stocks not investor favorites, analysts say
Stocks of casino operators focused on the Las Vegas Strip and Macau have performed well this year, but regional casino stocks have fared much more subdued.
Deutsche Bank analyst Carlo Santarelli noted in a new note to clients that while the regional gaming space is stable, it has fallen out of favor with investors "because of the "A negative correction is more likely than an upward correction."
With the second quarter ending today, investors will turn their attention to the regional carrier's upcoming earnings reports. The June quarter may be difficult for regional operators due to a poor calendar in April and some reductions in gross gaming revenue (GGR) in May, but overall spending at these venues remains stable.
Spending per visitor continues to increase approximately 30-35% compared to 2019, driving continued growth in GGR, although visitor numbers remain approximately 20% below 2019 levels," Santarelli noted. "We expect spending per visitor to increase More relevant to the mix, the lowest-spending customers accounted for the majority of the decline in admissions, while the remaining customers saw only modest increases in spending. "
With the summer travel season underway, the third quarter could be key to 2023 share price performance for some regional casino stocks.
Macro themes remain critical for regional casino stocks
While there are few signs of economic contraction on the Las Vegas Strip and in Macau, macroeconomic headwinds for casino stocks in the region remain.
These include concerns about inflation eroding real wages and rising gasoline prices as the summer travel season gets into full swing. Although the consumer price index (CPI) is falling, it is still more than double the level at the end of 2020. A related point for the gaming industry is that, according to some estimates, inflation has had the effect of taxing U.S. workers by reducing their earnings for more than two years.
"The correlation between average weekly earnings and regional GGR from 2007 to 2019 was 0.88. Therefore, we believe it makes sense for investors to consider the relationship between real wages and GGR performance when looking ahead," Santarelli added road. “The good GGR performance is somewhat surprising given the fall in real wages during the LTM period to March, although favorable weather in Q1’23 helped.”
Real wages have fallen nearly 4% since President Biden took office in April, according to the Republican-controlled House Budget Committee.
Personal Finance Impact Area Casino Stocks
As Santarelli noted, household finances have been a "source of comfort for the gaming industry" over the past two years. This situation is supported by massive government stimulus measures due to the coronavirus pandemic. However, the bill for this and other government spending will come in the form of higher inflation.
Recent data from the Federal Reserve shows that the United States has $988 billion in credit card debt — a situation that becomes even more ominous as the central bank raises interest rates to combat inflation. So far, these situations have not punished area casinos.
"Despite a significant year-on-year decline in savings in 2022, gaming spending continued to increase across our agent set, accounting for approximately 2.6% of household savings that year. This result exceeds the value achieved in the 2010-2013 period and is significantly higher normalized relations in the period 2014-2019," Santarelli concluded.
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Source: www.casino.org
