Fourth-quarter financial results for the largest U.S. casino operators are now in, and they can be summed up in one word—unexciting.
Or to look at it another way: Thank goodness the outlook for U.S. casinos appears to be steady. Inflation, fears of recession, more expensive labor agreements, uncertain interest rate trends, slowing international economies and incessant doom-saying by the talking heads of TV and loony online influencers, none of that seems to be changing the somewhat reassuring outlook.
All of this should mean that gaming is ripe for investors looking for defensive qualities and for a sector that still has some growth prospects.
A few years ago, the industry was about growth, growth, growth. And that is still true in portions of it, such as digital. But the overriding trends are incremental growth accompanied by balance sheet improvement and returns to shareholders through dividends and/or share repurchases.
All of that, combined with the industry’s historically low price-to-earnings ratios, means valuations for casino operators tend to be modest, not so much by those historic standards, but by the more or less steady earnings growth and capital returns the next several years offer.
In short, casino stocks, especially those of the big operators, appear both reasonably priced and relatively safe.
CHURCHILL UPS
Meanwhile, far away from the lights of Las Vegas, there’s a company that just continues to beat and beat and beat—Churchill Downs.
Once again, Churchill delivered quarterly results that exceeded the continually raised analyst expectations. Once again, it was the company’s seemingly endless pipeline of new and expanded historical horse racing (HHR) machine properties that helped do the trick.
And there’s more to come, of course. On the day the company released fourth-quarter results, it issued separate news releases—just to make sure they got their just attention—reminding investors that growth will continue with two more operations to open within the next year.
One of particular note is an HHR facility in Dumfries, Virginia, that opens in September.
This isn’t just a slot parlor. It will be a $460 million resort quality property with 102 hotel rooms in the midst of populous and wealthy northern Virginia and just 30 miles south of Washington, DC. All one has to do is look at the numbers MGM produces at National Harbor in Maryland, also just 30 miles away, to get a sense of how big this will be for Churchill.
Nor is Churchill Downs nearing the end of growth. HHR machines have become the new VLTs. There is plenty of room for states and properties with legal pari-mutuel racing to add them. And Churchill didn’t buy HHR manufacturer Exacta for no reason.
Finally, if you want more than just growth, Churchill is reducing debt ratios, buying back stock and paying a dividend.
A post-script: In the credit where credit is due department, it is worth noting that Jefferies analyst David Katz has been a long-time bull on Churchill even when it was an even less covered company.
PERSONAL NOTE
The tourists and conventioneers don’t know it, but those in the gaming industry do: Las Vegas is now quieter and less luminous, as John English is no longer with us.
The ebullient entrepreneur died recently leaving behind many treasured memories of his husky voice, ready laugh and perpetual good cheer.
Condolences to his family. John will be missed.
