Published on: November 20, 2024, 02:29h.
Last updated on: November 20, 2024, 02:29h.
Casino landlord Gaming and Leisure Properties (NASDAQ: GLPI) experienced a slight increase in trading on Wednesday following an analyst’s upgrade of the stock.
In a recent report to clients, a Deutsche Bank analyst upgraded the real estate investment trust (REIT) to “buy” from “hold” and raised the price target to $54 from $49, suggesting a potential upside of about 7% from the previous day’s close. The analyst cited a more favorable interest rate environment and investor interest in lower-risk gaming stocks as factors that could drive the share price of Gaming and Leisure Properties higher.
Due to increased concerns surrounding interest rates, GLPI shares have underperformed in 2024, with a modest 1% increase year-to-date (SPX +24% / RMZ Index +11%) and a 3% decline quarter-to-date (SPX +2% / RMZ Index -2%). We believe that in the current uncertain gaming market, investors are seeking exposure through safer avenues, in which GLPI is perceived to be a strong candidate,” stated the analyst.
Real estate is a sector highly impacted by interest rates, with looser monetary policies potentially serving as a catalyst for shares of GLPI and its competitor, VICI Properties (NYSE: VICI).
Interest Rates and Gaming
In September, the Federal Reserve lowered rates for the first time in four years, reducing its benchmark lending rate by 50 basis points. This was followed by another 25 basis point cut earlier this month.
Over the past 90 days, Gaming and Leisure Properties has seen a slight increase in trading, potentially in response to the rate cuts. As we head into 2025, the casino REIT may attract new investors as the Fed is expected to continue lowering rates in the first half of the year if inflation remains low.
GLPI also offers other advantages, including a strong balance sheet and a dividend yield of nearly 6% — significantly higher than what is found in low-risk government debt or most gaming stocks.
Analysts have praised the REIT for its geographical and tenant diversification. Gaming and Leisure Properties has minimal exposure to Las Vegas and a diverse client base. In contrast, VICI Properties relies heavily on Caesars Entertainment and MGM Resorts International for 74% of its rental income and is the largest owner of casino real estate on the Las Vegas Strip.
GLPI as an Investment
Aside from its attractive portfolio and valuation, Gaming and Leisure Properties’ promising future prospects were key factors in the analyst’s upgrade.
“We believe the following factors will drive share price upside; 1) a strong pipeline following an active 2024, despite challenging rate conditions, 2) a well-structured balance sheet, alongside access to equity capital and minimal refinancing hurdles in the near term, 3) solid tenant coverage, and 4) favorable valuation metrics relative to peers,” noted the Deutsche Bank analyst.
This pipeline includes ownership of the real estate associated with Bally’s permanent Chicago casino, exposure to a Major League Baseball stadium in Las Vegas, and potential development of a Bally’s casino hotel on that property.