The US is the place to be when it comes to winning gaming equities, as one analyst is extolling the virtues of names such as Caesars Entertainment (NASDAQ:CZR), Golden Entertainment (NASDAQ:GDEN), and MGM Resorts International (NYSE:MGM).
In a note to clients today, Macquarie gaming and leisure analyst Chad Beynon points out that while domestic gross gaming revenue (GGR) figures for May dipped a bit from the prior month, strong volumes over Memorial Day weekend offset much of that weakness, adding that GGR is heading in the right direction in the US.
Assuming June data is 90-95 percent of May levels, we believe GGR is trending up mid to high-double-digits quarter-over-quarter for 2Q (+7 percent vs 2019),” said Beynon. “In Vegas, gaming revenues continue to rise (slots set monthly record in April) and this should benefit 2Q as well.”
Amid a spate of encouraging data out of Las Vegas, the largest US gaming center, Beynon favors MGM and Caesars — the two largest operators on the Strip — and Strat owner Golden. Las Vegas-based Golden operates 10 casinos, nine of which are in Southern Nevada, including the Strat.
Lots to Like with Caesars, MGM
Shares of Caesars and MGM are already on torrid paces this year. Weekend occupancy is at nearly 100 percent through the end of 2021, and expectations are that vital convention business will start trickling back to Las Vegas in the back half of the year.
Those gaming equities are up 49 percent and 37 percent, respectively, year-to-date. Beynon raised his price target on the Flamingo operator to $134 from $128, becoming the second analyst in as many days to do so. His forecast on Golden takes it to $55 from $50, with the new outlook being one of the highest on that name on Wall Street. His MGM price estimate remains $54.
“Caesars management continues to highlight a strong margin expansion story and internal expectations for a faster Vegas recovery compared to Street expectations,” said the analyst. “January and February trends showed solid sequential improvement, which accelerated sharply in March, and have continued into April. Booking pace for the back half appears robust, and our room rate survey work points towards healthy pricing in 2H21 as well.”
Beynon also highlighted Caesars recently completed acquisition of William Hill, saying that the combined company should achieve approximately 10 percent share in the US online sports betting market.
Golden Opportunity with Golden Entertainment
Already up a breathtaking 132 percent this year, Golden Entertainment is easily one of 2021’s best-performing gaming equities. It is earning praise among analysts commensurate with that performance.
Like many smaller operators focusing on the Las Vegas locals (LVL) segment and regional markets, Golden expanded margins during the coronavirus pandemic. As a result, Beynon says Macquarie’s 2021 through 2023 earnings before interest, taxes, depreciation and amortization (EBITDA) estimates on the operator are well in excess of 2019 levels.
“GDEN delivered 900 bps of casino margin expansion to start ’21, with EBITDA +16 percent vs 1Q19, exceeding cons expectations by 37 percent,” said the analyst. “The beat was broad-based, as LV Local margins of +32.1 percent, or ~600 bps, helped drive a 37 percent beat against segment cons. Looking ahead, we believe GDEN can match this quarter in other ’21 quarterly results, primarily given the STRAT ramp.”
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