There are concerns about the strength of the US economy, and those worries will only be amplified if a resolution on the debt ceiling isn’t reached, but for now, there are no signs of macroeconomic distress on the Las Vegas Strip.
Stifel analyst Steven Wieczynski and team recently returned from meetings in Las Vegas with a dozen Strip operators, regional casino companies and gaming device manufacturers. In a new report to clients, the analyst observed that the level of current Strip demand is “amazing,” and the major operators’ management teams are seeing little negative change in consumer behavior.
Comps toughen beginning in 2Q23, though this should be well understood by investors now. If the market was going to soften you would also start to see discounted room nights and an uptick in promotional spend, both of which are not currently taking place,” wrote the analyst.
MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ: CZR) are the two largest Strip operators. Management commentary on recent earnings conference calls confirmed first-quarter strength in Las Vegas and evidence that that momentum seeped into the early stages of the current quarter.
MGM, Wynn Among Most Optimistic
Of the dozen companies the Stifel analysts met with, the most optimistic were MGM, Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) among casino operators and International Game Technology (NYSE: IGT) and PlayAGS (NYSE: AGS) among device makers.
Sands isn’t a Las Vegas story, and while Wynn is often viewed through the lens of Macau, its Sin City properties contributed mightily to the operator’s solid first-quarter results. Regarding MGM, that company could derive long-term benefits from the Oakland Athletics moving to Las Vegas due in part to its portfolio of 35,000 Strip hotel rooms.
“MGM stands to benefit from the development: 1) the MGM Grand has a large-scale parking garage that is currently under-utilized, which could generate significant revenues on MLB game days given attendance is expected to be comprised of mostly local residents, 2) the Excalibur could be a prime candidate for redevelopment with outsized returns in a few years given its proximity to the proposed site,” add Wieczynki.
For its part, Wynn management told the Stifel team that its group bookings for 2023 are on a record pace, and advance reservations for 2024 indicate those records will be topped.
The operator is notching bullish results on the Strip even though Chinese customers haven’t returned in mass, but there’s been an increase in international visitation thanks to Canadian and Mexican clients.
Caesars Enhancements Could Pay Dividends
Caesars is the second-largest operator on the Strip behind only MGM, but the former’s expansion and refurbishment plans in other markets could pay off over the long term. Those include the debut of a regional casino in Danville, Va.
Additionally, the company is pouring $400 million into enhancing its Atlantic City venues and a comparable amount into Harrah’s New Orleans. Wieczynski estimates the operator will realize 10% to 15% return on investment in New Orleans as that venue is primed to become a high-end destination that will eventually bear the Caesars brand.
“In Atlantic City, the $400M of market-wide CapEx investment required by regulators has almost concluded, and management indicated they have installed the company’s most top property-level management team, which should facilitate more effective yield maximization in the region,” concluded the analysts.
Caesars runs three Boardwalk venues.
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