Last Updated: October 2, 2023, 06:39h.
Date Posted: October 2, 2023, 06:39h.
Las Vegas casino stocks have experienced a bearish trend since the beginning of August. However, an analyst believes that this decline will be temporary as there are promising prospects for Strip operators in the medium term.
In a recent note to clients, Macquarie analyst Chad Beynon pointed out that despite temporary disruptions, Las Vegas gross gaming revenue (GGR) in August remained strong, indicating a potential 5% increase compared to last year. Beynon also highlighted the stability in slot machine handle and robust non-gaming revenue sources, such as revenue per available room (RevPAR).
According to STR data, there is expected to be low-to-mid-single digit Strip RevPar growth in the third quarter, surpassing consensus expectations. Additionally, Las Vegas’ airport reported record-breaking passenger numbers in July, with an increase of 1.7% YoY, including the highest number of international passengers since January 2020. Although the numbers for August dipped slightly by 0.5% YoY, overall TSA data in the US has shown a recent upward trend.
These positive indicators could potentially benefit MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ: CZR), the two largest operators on the Strip, which jointly control around 60% of the GGR in the area.
Recent Disruptions for Las Vegas Casino Stocks
The disruptions mentioned by Beynon are likely related to the recent ransomware attacks targeting Caesars and MGM.
Both operators were attacked by the same hacking group, utilizing similar methods. However, their responses to the attacks differed significantly. Caesars chose to pay the ransom demand, which was covered by their cyber insurance policy. Conversely, MGM attempted to handle the situation internally, resulting in 10 days of chaos at its casino hotels across the country.
For investors, the silver lining is that the declines in Caesars and MGM shares following the cyber breaches may have been excessive.
Beynon stated: “Despite the cyberattacks in September and their potential short-term impact, we believe MGM’s results were trending above consensus expectations. While the events were disruptive and could lead to room rate pressure in the fourth quarter, we consider the approximately 14% decline in MGM/CZR shares since the September 11 announcement to be an overreaction compared to the 4% decline in the S&P 500.”
Potential Events to Boost Las Vegas Casino Stocks
Las Vegas casino equities have several catalysts that could help drive their recovery, including an appealing event calendar.
Beynon concluded: “We anticipate the return of conventions and a strong sports/event calendar over the next couple of years, such as NCAA men’s Division I basketball tournament games, Formula 1 races, LV Raiders and Golden Knights games, the 2024 Super Bowl, and more. These events are expected to provide support and growth for Strip GGR and non-gaming revenues.”
However, the possibility of a labor strike, authorized by the Culinary and Bartenders Union, could present a challenge. With the F1 race just six weeks away, the union may have significant bargaining power in negotiations with casino operators.