Maybe the bulls are getting tired.
First-quarter earnings season has kicked into high gear, with regional casino operators Boyd and Monarch reporting, along with Las Vegas Strip and Macau-centric MGM Resorts.
All three companies reported impressive results, and their CEOs spoke glowingly of business rebounding from the Covid-19 pandemic. They did what they have promised in the past and continue to promise: to maintain higher margins on cost discipline, even after customers return and expenses inevitably rise.
Sell-side analysts responded with enthusiasm, to put it mildly. Carlo Santarelli of Deutsche Bank said companies often beat consensus earnings forecasts, but Boyd bludgeoned them. Steve Wieczynski of Stifel called Boyd’s margin expansion beyond impressive.
Boyd CEO Keith Smith and MGM CEO Bill Hornbuckle were confident and optimistic in their conference calls.
Stock price targets were raised all around.
That came atop Nevada gaming revenues released the previous day, which showed that the Las Vegas locals market and Downtown Las Vegas are up more than 20 percent over pre-Covid 2019, and the Strip is bouncing back.
In this bull market, that combination should have driven their stock prices and those of their regional peers into the stratosphere.
Instead, they mostly slipped over the next two days: Boyd down 3.64 percent, Caesars down 2.26 percent, Bally’s down 1.88 percent, Red Rock Resorts up a smidgen. That compares to their year-to-date performances: Boyd up 67 percent, Caesars 37, Bally’s 19, and Red Rock 48 percent.
Penn National is up just about 7 percent year-to-date, but has been the best performing stock in the S&P 500 over the previous 52 weeks. It slipped 1.52 percent over the three days from the Nevada revenue release until the day after Boyd and Monarch reported.
This could be just a case of taking a breather before the next run-up. Or it could be that all the good news is already in the stock prices, as the old saying goes.
The Little Engines That Could
Meanwhile, the smallest of the regional operators by market cap didn’t take a breather. They accelerated. Here are their advances, both over those three days and year-to-date.
Three Days Year-To-Date
Century Casinos +14.44% +76%
Full House Resorts +10.97 +127
Golden Entertainment +7.12 +70
Monarch Casino +9.77 +23
The companies have some commonalities. Golden and Monarch are heavily Nevada-oriented. Full House and Monarch have transformational projects in Colorado developing destination resorts in markets that have eliminated bet limits. Monarch’s project in Black Hawk is open. Full House’s project in Cripple Creek is about to get under construction.
Golden and Century share low valuations. B Riley analyst Dave Bain, for example, puts Golden’s 2023 enterprise value-to-EBITDA at 6.4 times vs. 9.8 times for peers. Century is just 5.9 times.
Bain initiated coverage on Century and Golden with buy ratings and $18 and $48 targets, respectively. That compares to their prices as of this writing of $12.84 an $33.68.
He forecasts free cash flow per share for Golden at $5.12 in 2023, which could justify a stock price over $50. And those are based on revenue assumptions that could prove conservative.
For those who want to gamble on a gambling stock, Golden also has Pennsylvania to consider.
The company has been lobbying hard for liberal slot route legislation in the Keystone State, which Bain thinks could be approved by autumn.
If Pennsylvania expands routes, 1,000 machines each could be worth $7.35 a share to Golden, Bain calculates. He thinks a market of 30,000 machines is possible with Golden getting 25 percent share. Using his valuation, that translates to $55 to the stock price.
That’s blue-sky thinking, but an interesting “what if.”
