This may be a year that divides traders from investors.
The near-term outlook for casino operators is not especially rosy.
Regional casino revenues are flat to declining, at least those revenues derived from brick-and-mortar operations. With the Super Bowl past, and no ConAg convention to look forward to this year, the Las Vegas events calendar isn’t goosing enthusiasm the way it did last year. Costs are rising, with an especially large bump thanks to new labor contracts. As a result, the much-vaunted operating margins are shrinking for many operators. There are signs that consumer spending might finally be slowing, including for travel and entertainment.
On the digital side, marketing costs continue their race with revenue growth, and profitability appears to be more a matter of individual company discipline rather than an overall trend, and, despite loud promises to the contrary, a lot of individual companies are still prioritizing market share over profits.
Yet, longer term, there are companies with plain, tangible and clearly successful growth strategies.
Three of these companies are heavily into Las Vegas —Wynn, MGM and Red Rock Resorts.
If you look at the near term, you might be tempted to trade out of them. After all, in addition to the challenges 2024 may bring, Wynn and MGM stocks are up better than 25 percent in recent months and Red Rock has gained 50 percent since autumn. The trading decision might be to take the profits and run.
We discussed Wynn and Red Rock recently and won’t go into them here except to say they have leading positions in markets they understand, proven growth strategies and proven leadership.
MGM is hitting on all cylinders: growing profits, improving the balance sheet, reducing its share count significantly, growing market share in a resurging Macau. And it has growth projects such as its renovated Mandalay Resort convention center in Las Vegas, a non-gaming resort rising in Dubai, the likelihood that it will get to transform its slots casino north of New York City into a full-fledged casino resort, further development of its successful online business, and whatever redevelopment of flagship MGM Las Vegas will occur when Major League Baseball comes to its doorsteps as the A’s build their stadium across the street. All of this with a stock selling at a modest valuation.
Further, MGM has leadership.
Much like in sports, where there is often a multi-year letdown and readjustment after a legendary head coach retires, MGM appeared for years to have lost its way after the passing of founder Kirk Kerkorian and the resignation of highly respected CEO Terry Lanni.
But that changed several years ago when big activist investors began to insist that the company capitalize on its position as the largest casino operator on the Las Vegas Strip, and then with the promotion of life-long gaming executive Bill Hornbuckle to CEO.
It took a while because ocean liners don’t turn around on a dime. But it is clear now that the job has been done and all of the positives mentioned above are powerful forces for a far more profitable future for investors than trading a stock.
