While we’re barraged daily during this earnings season with reports from individual gaming companies, it might be worthwhile to step back and look at the big picture.
That picture perhaps can be best summed up in one word – uncertain.
Much of that uncertainty can be traced to 1600 Pennsylvania Avenue as everyone from consumers to economists to business leaders wonder what Donald Trump and his chainsaw-wielding sidekick Elon Musk will or won’t, can or can’t, do and the results of all their noise, drama, threats and bluster.
This isn’t to say Trump’s proposals are right or wrong or whether he will be able to implement them largely or just partially.
But there is a prospective impact in the now as people try to calculate the future.
If you ask casino operators what economic statistics are most important to them they will say employment rates and consumer confidence.
It is early on and the impact of tariffs and prospective reduction in federal government employment are still subject to considerable speculation. Short of that, the most recent reports suggest at least a softening of national employment trends.
However, the impact of this uncertainty on consumer confidence seems clear and emphatic. The University of Michigan survey shows consumer confidence plunging to an index reading of 64.77 percent from 71.1 percent in January and 76.9 percent last February. The consumer expectation index is 64, down from 69.5 percent in January and 75.2 percent last year. The long-range expectation index is its lowest since November 2023.
The implications for gaming are clear. People without jobs don’t spend money in casinos. People fearful of their economic prospects don’t spend as much. Companies concerned about near-term profit trends send fewer employees to tradeshows and conventions. Casino executives so concerned don’t spend as much on games and associated technology and equipment.
Obviously, this doesn’t make a bullish case for stocks. Investors fearing a declining economy aren’t going to be enthusiastic about continuing to pay 25 and 30 times future earnings for stocks and, of course, those future earnings would be lower, magnifying the prospects for stock declines.
If there is good news for casino stocks in such an environment, it is that their prices are so far down that their bottoms may not be a heck of a lot lower and that, for the patient, they could become screaming buys.
BELOW THE RADAR
In such an uncertain environment, it serves every stock investor to own a few stalwarts that might not dazzle during bull runs, but that will provide some safety when the bears take control.
Readers of this space will not be surprised that we know of two such stalwarts in gaming – the REITs, Gaming and Leisure Properties (GLPI) and VICI Properties.
Trading around 12 times next year’s adjusted funds from operations, these are not high-flyers begging to crash. In fact, their valuations can be said to be low and the stock prices ought to be higher.
Further, their rents are rock solid if the experience of the 2020 Covid panic is an indication. It probably would take something like a repeat of the 1929 stock market crash and a repeat of the Great Depression to shake their financial underpinnings.
The REITs also have a path to steady growth, both in scheduled rent increases and in their ability to finance tenant property expansions.
They also have strategies beyond more of the same. For VICI, it is renting and/or financing what they call experiential properties, from golf courses to family resorts to wellness retreats to luxury hotels. For GLPI, it is trying to extend into tribal growth projects.
Many REIT investors are looking for the conventional growth of buying and leasing back properties. Such deals have slowed in the current interest rate environment as have all sorts of financial transactions. But that might not fully apply to VICI and GLPI. Both report considerable potential activity among privately owned enterprises. Those under-the-radar screen possibilities could translate into more deals in 2025 than many expect.
Meanwhile, VICI and GLPI pay dividends yielding 5.4 and 6.2 percent, respectively. That itself is some comfort in an era of inflation and an uncertain national economy.
