Regional Casino Stocks May Prove to be Reliable

February 7, 2023 World Earnings & Filings

To begin 2023, gaming stocks of all colours are doing nicely. However, as this year progresses, regional casino stocks might rank among the more reliable ones.

The investing industry expressed concerns as 2022 came to a close that regional casinos would be squeezed by the dangerous trifecta of high inflation, rising interest rates, and consumers reducing discretionary spending to offset macroeconomic headwinds. Data show that local casinos are holding up better than anticipated.

“While there has been a slight deceleration from the consumer, there’s nothing that’s meaningful to financials or, at this point, to valuations, in our view,” wrote Macquarie analyst Chad Beynon in a note to clients. “As we wrap up numbers for ’22, this implies 4Q22 gross gaming revenue (GGR) +1% year-over-year, or +10% vs 4Q19, and we caution slight YoY weakness in the South (tough comps) and some markets in the Midwest (weather). Drilling down further, spend/visit is still driving gaming revenue higher, up >30% (vs ’19) in the recent months.”

Beynon anticipates a 2% decline in GGR for regional casinos in 2023, with the current quarter showing the fastest revenue growth outside of destination markets.

Mixed Fourth-Quarter Results for Local Casino Stocks
Investor response to news from regional operators has been uneven so far this earnings season. For instance, Penn Entertainment (NASDAQ: PENN) reported strong fourth-quarter numbers, yet the stock fell on Thursday. On the other hand, Boyd Gaming (NYSE: BYD) is surging Friday as a result of a strong earnings beat.

Two factors, geographic diversification and historical precedence, may bode well for regional casino stocks. Regional operators may be stable compared to the larger consumer discretionary sector, even if a recession occurs and develops into an economic catastrophe equivalent to the global financial crisis, an unlikely scenario.

“Regional Gaming has remained resilient over the past few years, as evidenced by the fact that during the global financial crisis, when revenues fell by the mid-single digits while falling closer to 20% in other discretionary sectors, Regional Gaming revenues did not experience the same level of decline. We anticipate corporations to offer flat sales forecast for ’23 (confirmed by PENN), a different task for any company in ’23, especially if downturn isn’t detected in January,” continued Beynon.

Regional casinos, according to some on Wall Street, might be resilient in the early stages of a recession and might not be at risk until statistics showing a major increase in unemployment arrives. The unemployment rate is at a multidecade low, and the January jobs data released on Friday was stronger than anticipated.

Predicting Surprises in Regional Casino Earnings
Beynon predicts that Bally’s (NYSE: BALY), MGM Resorts International (NYSE: MGM), and Monarch Casino & Resort will deliver the highest earnings beats among regional casino operators (NASDAQ: MCRI).

MGM has a sizable regional portfolio, particularly in the Mid-Atlantic and Northeast, while being the biggest operator on the Las Vegas Strip.

Beynon predicts that regional casino operators including Wynn Resorts’ Encore Boston Harbor (NASDAQ: WYNN), Century Casinos (NASDAQ: CNTY), Full House Resorts (NASDAQ: FLL), and Caesars Entertainment (NASDAQ: CZR) may meet or slightly miss profit estimates.