Second-quarter earnings season kicked off this week and it’s only a matter of days earlier than gaming corporations step into the earnings confessional.
New Yr’s revelers on the Las Vegas Strip. An analyst says gaming equities might ship on Q2 earnings stories. (Picture: Las Vegas Metropolitan Police Division)
In combination, gaming equities lagged the S&P 500 within the first half of the yr, however Churchill Downs (NASDAQ: CHDN) and MGM Resorts Worldwide (NYSE: MGM) might be among the many business’s winners in earnings season and past. That’s the take of Macquarie analyst Chad Beynon who highlighted that pair, amongst others, in a wide-ranging report back to shoppers on Wednesday.
As we glance into 2H23E, we anticipate Gaming inventory outperformance given steady fundamentals and discounted valuations,” wrote the analyst. “Traditionally, the sector has robust macro correlations, however fundamentals have just lately outpaced inflation given general wealth creation significantly with older age cohorts.”
Printed Wednesday, the June studying of the Client Value Index (CPI) confirmed a rise of simply 0.2% on a month-over-month foundation, which is lower than economists anticipated. Whereas rampant authorities spending compelled inflation to multidecade highs final yr, it’s now cooling, and that easing might be a plus for Las Vegas Strip and regional on line casino operators.
Churchill Downs: Regional Standout
Whereas Churchill Downs has no Las Vegas Strip publicity and there are lingering issues in regards to the state of the US horse racing business, the inventory is a gaming favourite on Wall Avenue.
Beynon anointed the inventory certainly one of his high concepts for the second half, calling it a standout amongst regional gaming corporations resulting from a sturdy pipeline and a projected three-year compound annual progress price of 20%-plus. That’s the best within the analyst’s protection universe, excluding Macau on line casino equities.
Along with the continued ramping of belongings that got here on-line final yr, different drivers of the Churchill Downs funding thesis embrace enhancements at its eponymous, storied Kentucky racetrack in addition to historic horse racing machine (HRM) and regional on line casino growth throughout a number of states.
“This well-diversified progress consists of 1) Flip 1 expertise; 2) DCG growth/resort; 3) LA HRMs in OTBs; and 4) DCG Downtown Louisville, along with ramping belongings from 2022. In 2024, we anticipate $190m+ of further challenge return EBITDA from 1) the Paddock challenge; 2) Queen of Terre Haute, 3) P2E progress (Dumfries, Rosie’s Emporia, different HRMs); and 4) Chaser’s (NH), in addition to $35m from the Exacta Methods deal,” noticed Beynon.
Vegas Vibes Robust for MGM
Up 40.35% this yr, MGM is without doubt one of the gaming equities outpacing the broader market — a efficiency pushed partially by the resilient Las Vegas Strip in addition to the Macau resurgence.
Beynon lauded the operator for “upmarket” strikes in Sin Metropolis, together with the acquisition of Cosmopolitan and the sale of the Mirage. These transactions enhance MGM’s leverage to luxurious shoppers which are typically much less weak to financial downturns. The analyst added that BetMGM is flourishing and mentioned buyers might not be absolutely appreciating the operator’s Macau publicity.
“For digital, we anticipate BetMGM to develop income ~35% in 2023 and proceed to consider there are alternatives to unravel for the 50/50 stake. With one of many strongest steadiness sheets, supportive shareholders, and a aim to be a world digital chief, we anticipate this chance to unravel the stake subject to be a precedence,” concluded the Beynon.
Translation: MGM owns 50% of BetMGM with Entain controlling the opposite half, however the former now has the assets to doubtlessly purchase the latter out of that association.
