We are about to enter the fourth quarter earnings report season and, for the first time in years, there’s an expectation that regional casino companies will have good news to share.
December gaming revenues were way ahead of the previous year. Some of that was thanks to better weather. But a lot of the improvement was customers finally returning to casinos.
With consumer sentiment at its highest level in years, it appears that more people are ready to spend on experiencing a good time.
That news has reached investors. Stocks of Penn National, Boyd, Isle of Capri and Monarch are at or near 52-week highs.
Analysts are getting more bullish. Thomas Allen of Morgan Stanley and Carlo Santarelli of Deutsche Bank have issued cautiously optimistic reports. Allen recently raised his EBITDA estimates on PENN and Gaming and Leisure Properties. Santarelli raised stock price targets on BYD, PENN and Pinnacle.
And with casino companies having reduced their cost structures, higher revenues should significantly increase profitability. Their stocks have a lot of room to run in that environment.
There is also a fair amount of company-specific good news.
Isle of Capri has enjoyed impressive revenue growth, up now four straight months.
Golden Nugget debuted in Lake Charles last month and the Boyd, ISLE and PNK properties there did just fine as the new resort opened with barely a nibble of cannibalization.
That is especially good for PNK given concerns that the Nugget would hit hard at its L’Auberge casino. Instead, former PNK CEO Dan Lee’s premise for building adjacent upscale resorts might prove true—it grows the market.
Then there is investor buzz over PNK spinning its real estate off into a REIT and BYD considering the same.
Monarch serves two underappreciated markets—Reno and Denver.
It isn’t too far fetched to say that Reno will become a boomtown with Tesla moving in, Apple there, and the outdoor lifestyle that could prove compelling to Silicon Valley types now that Elon Musk and Apple have given their imprimatur.
In Colorado, MCRI is renovating its Monarch casino and, more important, plans a luxury quality hotel that it thinks can generate the kind of EBITDA done by Ameristar, the only other full resort property in Black Hawk. That would mean $60 million a year, a game-changer for a small company.
PNK, PENN, BYD and even ISLE get a lot of ink as the biggest regional operators, but there are some small names that have fallen out of favor and are unlikely to grab as much attention in the recovery.
They have lots of numbers in their reports that aren’t pretty, but each is small enough that a turn around in their stock prices can happen quickly. And all have stocks well below their highs.
Here are a few observations about them:
• Full House has challenges in each of its markets. But can anyone doubt that Dan Lee won’t bring material operational improvement to FLL now that he is CEO?
His track record at taking over a then very troubled Pinnacle is a hint.
• Lakes Entertainment’s strategy has always been somewhat fuzzy, but LACO seems to have focus now.
Its new Rocky Gap casino in Western Maryland is catching on, and LACO has more than $5 a share in cash.
And in chief shareholder Lyle Berman, Lakes has a CEO who’s always thinking.
• Eldorado Resorts merged with MTR Gaming to become a publicly traded operator of casinos in Ohio, Pennsylvania and West Virginia, as well as in Reno and Louisiana.
One of its biggest cautions is debt.
But ERI also has steady leadership under major shareholder and CEO Gary Carano, has the coming Reno boom, and has proven ability to improve margins in the kind of markets MTR occupies.