Despite the struggles of gaming equities this year, investors may not want to leave Las Vegas.
That’s the sentiment of Macquarie analyst Chad Beynon and team. In a report out Thursday, the analysts point out searches for Las Vegas travel are soaring and that could be a harbinger of a strong summer for operators in the largest US casino hub.
Our monthly LV survey points to continued strength for hotel searches into Las Vegas,” says Beynon. “Overall ‘searches’ were up 12% month-over-month in March, following a solid 15% in February and 12% in January. We believe searches are at all-time highs, which bodes well for 1H22.”
The Macquarie team adds that there’s an 80% to 90% correlation with gaming revenues and searches for travel to Las Vegas since the city reopened in earnest last summer following various coronavirus restrictions. For example, if travel searches for Las Vegas jump in April, it’s possible gaming revenue there will rise in May.
Strong Start, But Casino Stock Disconnect
Data confirm that January and February 2022 represent the best two-month start to a year on a record for the domestic gaming industry.
In theory, that should be a boon for US-focused casino operators, particularly those with heavy Las Vegas footprints such as Caesars Entertainment (NASDAQ:CZR) and MGM Resorts International (NYSE:MGM). However, the reality is different. Shares of MGM and Caesars — the two largest Strip operators — are off an average of 16.5% year-to-date. The S&P 500 is off 7.83%.
Those weak performances and others among casino stocks suggest there’s a disconnect from strong gaming numbers to equity market showings. Adding to the case for gaming equities is that visitors are shrugging off high gas prices across the US to make their way to Las Vegas and regional markets.
“Companies such as CZR, MGM and Penn National Gaming (NASDAQ:PENN) have noted little impact from rising gas prices, which appears to be the case in the regional markets as well as Vegas, where close to half of the customers may be driving in from the West Coast,” adds Beynon.
The analyst adds Las Vegas attendance for the NCAA Tournament was robust and vital convention and meeting business is starting to pick-up. Convention attendance bouncing back is critical to the likes of Caesars, MGM and others on the Strip because they control hundreds of thousands of square feet of meeting space that needs to be put to use.
Catalysts Looming for Las Vegas Casino Stocks
The Macquarie team also highlights the recent spate of Strip asset sales as auguring well for operators looking to engage in those transactions, of which Caesars is likely to be one over the near-term.
“Recent Strip asset sales have been trading at record cap rates/EBITDA multiples, including the Venetian (16x EBITDA), CityCenter (18x), and Cosmo (20x),” said Beynon and team. “We would note this bodes well for outlooks from REITs/operators on the recovery ahead as well as future strip multiples for operators that are looking to sell assets (CZR, MGM).”
The analysts lofty prices on Strip property sales are positive for operators that own all of their real estate, such as Golden Entertainment (NASDAQ:GDEN) and Red Rock Resorts (NASDAQ:RRR).
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