Southern and Midwestern regional gaming markets could experience a comeback in 2015, thanks to the lowest gas prices since March 2004 and rising consumer confidence, analysts said. “Several data points have developed which could point to the beginning of a recovery,” Morgan Stanley gaming analyst Thomas Allen recently said, adding 2015 could be the best year since 2006 for consumers based on improving liquidity, steady wage growth and rising home values. Macquarie Securities gaming analyst Chad Beynon said, “Solid data points continue to trickle in.” Beynon said regional markets were poised for a comeback, noting combined regional gaming revenue jumped 5 percent in December.
The indicators could mean high expectations for regional gaming operators, like Pinnacle Entertainment. Said Beynon, “We look to continued synergies and adoption of best practices from the Ameristar acquisition, the highest quality regional properties and healthy clientele to propel low-to-mid-single-digit cash flow growth in 2015.” Deutsche Bank gaming analyst Carlo Santarelli noted, “Given the favorable early trends at L’Auberge post the Golden Nugget opening, we believe the early results will allow management to reinforce its view that Lake Charles has considerable depth to absorb the new capacity.” In December, gaming revenue increased 66 percent in Lake Charles, according to the Louisiana Gaming Control Board.
Pinnacle doubled in size in 2013 when it acquired Ameristar Casinos for $2.8 billion. Its 15 casinos in eight states are moving into a real estate investment trust. In addition, Tilman Fertitta’s Landry’s invested $700 million to open the Golden Nugget in Lake Charles in December. Rather than cannibalize existing Lake Charles casinos, the Golden Nugget boosted the western Louisiana market, which draws customers from the Houston area, bringing in $27.5 million from gamblers. L’Auberge Lake Charles posted $32.8 million for the month.
Analysts also are positive about Boyd Gaming, which operates nine casinos in the Las Vegas area and the Borgata in Atlantic City, plus 12 casinos in six regional markets. Beynon said he improved his outlook for Boyd, based on the Borgata’s market-leading position in Atlantic City. But he added Boyd will benefit from the “broadly improving” regional environment. “For investors with a bullish economic outlook, we believe Boyd has the highest risk-versus-reward, given that a 1 percent increase in revenue results in $1 of earnings per share to the company’s stock,” Beynon said. I
n 2011, Boyd bought the IP Biloxi for $278 million and in 2012 purchased for $1.45 billion regional rival Peninsula Gaming, which operated five casinos in three states. Santarelli noted, “We view Boyd as both a buyer and seller of assets and believe the company could be aggressive in 2015 on this front.”
Still, Morgan Stanley’s Allen said regional gaming operators—and investors—should proceed with caution. “Prior periods of improving trends have proved to be short-lived. There are also several headwinds that could continue to negatively impact the industry,” he said.
