We’re about to enter third quarter earnings season and here are some questions to be answered by companies’ financials and asked of executives in their investor conference calls:
• Are the seemingly healthy economy and more confident consumers continuing to show their impact on the bottom lines of regional casino companies?
• Can those same regional companies, which have been cutting costs and improving margins since the Great Recession, continue to improve margins? Or, with the easy pickings accomplished, will they now spend more to upgrade their casino floors and compete for players?
• Companies have been improving balance sheets and some have started to return capital to shareholders during this long period of slow but sure recovery. Will the process of improving balance sheets continue, or even accelerate?
• How are future room rates and bookings trending in Las Vegas since the Mandalay Bay shootings? Is consumer behavior changed in any way? Will any change be passing or long terms?
Monarch’s Magnificent Run, Sci Games Sky High
There is a very technical term for the performance of the stocks of Monarch Casino and Scientific Games. I think that term is: Wow!
As of this writing, Sci Games stands over $48 a share compared to the $8.72 when Kevin Sheehan took over in August of 2016.
Monarch stands at a new high of over $41 compared to $17 less than two years ago.
These results are especially impressive given the nature of their operations. About a third of Sci Games’ revenues come from lotteries, a steady-as-she-goes business that protects the company’s downside but not a rocket ride on the upside. Likewise, its bigger business is supplying casinos with slot machines, and systems operate in a near static environment. While Sci Games is steadily improving its balance sheet, it still has significant debt.
Monarch is performing well at its two properties in Reno and Black Hawk, Colorado, and no doubt is benefiting from the economic and population growth of Reno and Denver, but the big catalyst—the development of Monarch Black Hawk into a destination resort—is still a 2019 story.
We’ll be reading their financials carefully, and listening closely to the Sci Games call (Monarch doesn’t conduct investor conference calls), looking for clues that their fundamentals can justify their current prices, and better.
Eldorado And Golden, Too
Two other companies have had huge runs in the past year or more, basically tripling their stock prices—Eldorado Resorts and Golden Entertainment.
As top-tier subscribers to Fantini’s Gaming Report know, Eldorado and Golden combined with Monarch to form what I have called my Nevada Triple Play. When I first discussed them, the word Triple meant three companies. Given current stock prices, triple is closer to also meaning their increase in value.
For those reasons, this quarter’s earnings and outlooks will be worth close attention.
Any of the triple-play stocks could sell off on profit-taking given their big run ups.
But our focus will remain on their long-term fundamentals that, if they remain in place, could more than offset any short-term fluctuations.
