While the industry partied in Las Vegas during the Global Gaming Expo, Wall Street burned.
Last week’s stock market plunge – the Dow Jones Industrial Average fell nearly 1,400 points over two days – eliminated much of the value gained this summer by publicly traded casino operators and equipment manufacturers.
But you couldn’t tell anything was amiss on the tradeshow floor or in the halls of the Sands Expo and Convention Center. It was kind of like the Internet meme of the dog sitting in a room engulfed in flames, sipping coffee and saying, “This is fine.”
Some Wall Street observers referred to the stock market downturn as a little bit of “turbulence.” Others saw buying opportunity in the weakened company prices.
Macquarie Securities gaming analyst Chad Beynon said there was a “disconnect” between the comments gaming company management was making during G2E and the cratering stock prices.
“Despite investor fears of rising interest rates and wages, operators highlighted that the consumer was as strong as ever,” Beynon said, noting casino operators saw increased business from customers who don’t use casino loyalty cards. The analyst said that is “typically the best indicator of a solid demand environment.”
However, continued hand-wringing over diminished third quarter results, coupled with worries over another less-than-stellar month in Macau, concerned investors and fueled gaming’s place in last week’s New York Stock Exchange and Nasdaq meltdown.
Several companies have been under dark clouds since the beginning of the year. Fallout from February’s sexual harassment scandal involving now-deposed Wynn Resorts founder and CEO Steve Wynn have depressed the casino operator’s stock price by 43 percent. Gaming equipment giant Scientific Games is down 62 percent this year, due primarily to worries about its debt, which stood at $9 billion as of the end of June.
Las Vegas Sands teetered near a 52-week low, while MGM Resorts International and Caesars Entertainment Corp. fell to prices not seen since 2017. Even regional gaming companies – including Boyd Gaming and Eldorado Resorts – were not immune.
Sun Trust gaming analyst Barry Jonas said the stock downturn doesn’t match regional gaming fundamentals and the operating performances of markets outside Las Vegas. But he understood why Strip-centric casino company stock values were down, citing resort fees, parking fees, and other charges that are “pricing leisure consumers out the market.”
Jonas said Las Vegas food and beverage managers “suggest restaurant sales have been down (in the) low single digits for the past five months, with September seeing particular weakness.”
The decline in Penn National Gaming’ stock price – down 22 percent since July – is perplexing.
Penn, which completed its buyout of Pinnacle Entertainment on Monday, has one casino in Las Vegas, the Tropicana, and nothing in Asia.
Deutsche Bank analyst Carlo Santarelli said Penn’s fundamentals were strong, consumer trends are unchanged, and the Pinnacle buyout will lead to $100 million in cost savings – half from the properties and half from corporate expense.
Analysts also said any decline in Boyd Gaming’s stock value is misplaced. The company closed its share of the Penn-Pinnacle deal, taking ownership of the Ameristar resorts in Missouri and the Beltara brands in Ohio and Indiana. The company also closed its purchase of the Valley Forge Casino Resort near Philadelphia in September.
“Management gives us continued confidence in both regional and Las Vegas locals’ fundamentals… as such, we continue to view Boyd as a stable and compelling long idea,” Santarelli said.
The markets fell again on Monday, but not to the extent seen a week ago, but rebounded Tuesday – the Dow regained 547 points. Quarterly earnings will begin rolling out in the next week and continue through the middle of November, so don’t be shocked to see a skittish investment community over the next six weeks.
Beynon attempted to ease fears in a research note issued Sunday.
“While the current unwind of gaming stocks will be difficult to predict, over the medium term we remain bullish on an industry where the underlying fundamentals are improving while no concrete overhang exists,” Beynon said.
He added the industry could alleviate concerns in 2019 through deleveraging efforts, returning capital to shareholders through stock repurchases, or continued merger activity.
Gaming stocks went along for Tuesday’s upward ride. But, if another decline surfaces, a reaction like the “This is Fine” mantra we saw a week ago may not satisfy a nervous Wall Street.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
