Wall Street bullish on Las Vegas and Strip gaming companies Caesars and MGM

June 11, 2021 5:11 PM
  • Buck Wargo, CDC Gaming Reports
June 11, 2021 5:11 PM
  • Buck Wargo, CDC Gaming Reports

Wall Street is growing more bullish about Las Vegas and the performance of Strip gaming companies, not only in Nevada, but across the country, especially when it comes to sports betting.

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A new report out today from J.P. Morgan said the firm “continues to like the trajectory and operating momentum of Las Vegas operators.” It cited several catalysts that should push earnings per share, increasing estimates for the second half of 2021 “leading into the fall and football season, which should be a seasonally strong period for U.S. sports betting operators across the board.”

The J.P. Morgan report said Caesars Entertainment will complete its integration of UK sports betting company William Hill, the purchase of which closed in April, while BetMGM will maintain its momentum of market share. Given that and potential earnings upside in Las Vegas and regional casinos across the country, the report said it’s raising price targets for Caesars and MGM Resorts International.

J.P. Morgan gaming and lodging analyst Joseph Greff said they have growing confidence in the recovery of group travel to Las Vegas that’s vital to midweek hotel occupancy. This week kicked off the return of large conventions in Las Vegas with the World of Concrete breaking in a new $1 billion hall at the Las Vegas Convention Center.

“We think Las Vegas will lead the group recovery, given its appeal as a blend and intersection of leisure and group, the best of both worlds,” Greff said. “Our price target (for Caesars) goes to $129 (up $9), and our MGM target goes to $52 (up $5) on higher multiples.”

In regards to Caesars, Greff specified the emerging online sports betting and igaming business and pointed to how Las Vegas tourists have “come roaring back, which should be supplemented by (a second half of 2021) convention slate that is nicely ahead of 2019.”

Greff said that records and near-records of gaming revenue reported in regional casinos have been driven by “non-core customers.”

Caesars’ margins are expected to be well above pre-COVID-19 levels at more than 50% in Las Vegas and 40% at regional casinos, he said.

As for MGM, Greff noted strength in Las Vegas and what he called “impressive results at BetMGM.” The removal of capacity limits and mask mandates in Las Vegas casinos has allowed for more seats at table games, slots, and non-gaming amenities, he said.

Air-travel capacity this summer at McCarran International Airport will approach 2019, which is important for conventions that are “the next leg up for the market,” Greff said. “This will help bridge the gap between midweek and weekend occupancy. Assuming Las Vegas Strip revenues return to 2019 levels, there could be an incremental $6 of equity value per share (for MGM) not in our estimates.”

In his report this week, Carlo Santarelli, gaming analyst at Deutsche Bank, projected gross gaming revenue in May on the Las Vegas Strip to come in 12% higher than May 2019. The Las Vegas locals’ market will see an 11% gain, but noted its growth is slowing.

Las Vegas Strip visitor traffic, which fell (compared to 2019) 54% in February, 46% compared to March, and 38% compared to March, will decline only 30 percent in May based on their estimates, Santarelli said. Locals’ traffic was similar to previous months with a 45% decline in May compared to May 2019. That’s similar to a decline of 42% in April and 43% in March compared to 2019.

That trend was spotted by CBRE analyst Brent Pirosch, who said that while March set a record for the locals’ market, April fell 4.6% from that peak.

“Stimulus spending, tax refunds, strong housing prices, and a moratorium on evictions are likely providing support,” Pirosch said. “Employment continues to improve as well, but we expect the recovery to be choppy, as stimulus support declines and we have a better picture of rent and mortgage pressure (with rents and home prices rising).”

Continuing that theme, Santarelli said that while they expect the Las Vegas locals’ market to “remain strong,” their May projection of a 11% growth in gaming revenue over May 2019 represents a “deceleration from the 18% gross gaming growth in April on a two-year basis.”