The headlines in the general business press are that the casino industry is booming.
Their proof: an 11.62 percent rise in gaming revenue in May along the Las Vegas Strip.
However, more locally-oriented Nevada markets didn’t do as well. Las Vegas locals revenue slipped 1.42 percent. Southern California-Arizona retiree-oriented Laughlin fell 2.94 percent. Washoe County, which includes Reno and Sparks, declined 4.82 percent.
Further, regional markets in June saw the largest and most mature markets decline:
Missouri by 2.61 percent
Iowa 3.46
Ohio 3.88
Indiana 5.07
Of the most mature and largest states that have reported June revenues as of this writing, only Illinois gained, up 5.08 percent.
In other words, the Las Vegas Strip, benefitting from the release of pent-up travel demand, wasn’t typical.
The weaker numbers coming out of regional markets may be telling us more about the true picture – and outlook – for U.S. casino businesses.
The prospects that inflation will wear on consumers and that the economy may be headed into recession have prompted several sell-side analysts to lower earnings forecasts and target prices for casino stocks.
This could be just the start of downgrades.
The start of second quarter earnings reports is now just days away, and that will bring with it both new guidance and reports of current customer trends.
It will be a modest surprise if CEOs don’t report the beginnings of weakness among customers, starting, as should be expected, with the lowest-value customers but working their way into more valuable customers.
There still may be some sense of the U.S. casino industry being two different worlds – the Strip and everywhere else.
Certainly, Strip casino operators will talk as bullishly as they can and point to the post-pandemic revival in conventions and the resumption of international travel.
And some, such as Caesars, might have company specific stories, such as the new Caesars Forum convention center generating business that just wasn’t there pre-pandemic.
But even as conventions and international business rebound, it is questionable how much positive impact they will have. Domestic tourists and gamblers still provide the lion’s share of business and even a group and international rebound is unlikely to reach pre-pandemic levels for a while.
In general, there is a lot of uncertainty on business trends, consumer health and the economic outlook.
As such, the assessments and outlooks given by casino executives will be more important than usual, and investors and analysts on the investor calls would do well to press management for specific evidence to back up any bullish commentary.
Meanwhile, casino companies might benefit significantly from the strengthening they built in during the Covid pandemic, namely margin expansion because of cost reductions and improved balance sheets.
If ever there was a time when casino companies can look forward with some confidence heading into an uncertain or difficult economy, this should be it.
Finally, investors need to keep their eyes on the future. Gaming stocks have been beaten down so much that a lot of the bad news might already be in the stocks. Indeed, values might be good enough now for investors to look through any recession and buy gaming stocks at what look like bargain prices today.
