Published on: September 23, 2024, at 01:20h.
Last updated on: September 23, 2024, at 01:35h.
This past summer witnessed record-breaking heat in southern Nevada, leading to a decrease in visitors to local casinos and gaming establishments in Las Vegas and Laughlin. Analyst David Bain from B. Riley subsequently adjusted downward his estimates for Golden Entertainment (NASDAQ: GDEN).
However, Bain maintains a positive view on the stock, reaffirming a “buy” rating with a new price target of $40, down from $44. This new projection suggests a potential increase of approximately 33% from the current share price. The stock has experienced a 3.23% decline in the last 90 days, contributing to a year-to-date loss of 25.48%.
“This summer marked the hottest weather in Las Vegas history, impacting visitation to local resorts, casinos, and taverns, in our assessment,” stated Bain. “Additionally, while convention attendance in Las Vegas remains steady, July saw a 7% decrease, attributed to the rotation of shows and the absence of the AWFS Fair compared to last July.”
Golden Entertainment operates the Aquarius and Edgewater in Laughlin, where it competes with Caesars Entertainment (NASDAQ: CZR) for the top position in the market.
Strat Potential for Golden Entertainment
Although technically not situated on the Las Vegas Strip, the Strat is in close proximity and is a premier property in Golden’s portfolio. Bain, who revised downward his EBITDA estimates for 2024 and 2025, highlighted the Strat’s strong weekend occupancy rates, although midweek levels are still below those of 2019.
“We estimate that reaching occupancy levels from 2019 could generate over $15 million in EBITDA at the Strat, a significant portion of which is not currently factored into consensus estimates. We anticipate positive trends in city-wide convention attendance, especially in the fourth quarter of 2024, which could boost midweek occupancy at the Strat,” noted the analyst.
Bain also mentioned that the Strat could see a quarterly EBITDA increase of $1 million to $2 million from Atomic Golf, which opened in March. Analysts have identified the Strat as benefiting from the Tropicana demolition and the temporary closure of the Mirage.
Focus on Share Buybacks for Golden
Golden is expected to prioritize returning capital to investors, primarily through share repurchases.
“We anticipate that GDEN will continue its share repurchase program, likely utilizing the remaining $61 million allocated for repurchases before the end of the year. With net leverage slightly below its 3.0x target, GDEN could utilize free cash flow and a portion of its $240 million undrawn revolver to continue significant share repurchases through next year,” stated the analyst.
Bain also suggested that with declining interest rates, Golden could explore selling the real estate assets where its casinos are located, potentially adding up to $12 per share in value. However, the company has not confirmed any plans for such transactions.