Third-quarter earnings for the casino industry kick off today and one firm expects a strong showing in Las Vegas for both the third and fourth quarters and into 2022.
Morgan Stanley issued a note to investors today citing the first two months of third-quarter gaming data in Nevada being “remarkably strong for Las Vegas, with Strip volumes up 26% versus 2019 and Las Vegas locals up 12%. Our channel checks suggest activity levels for September were not as strong as July/August, but still above 2019 levels, which translates to the third quarter running ahead of our prior forecasts.”
The note from Equity Analyst Thomas Allen said Morgan Stanley will raise its Las Vegas fourth-quarter and 2022 forecasts “to reflect a continuation of this trend and we expect the reopening of U.S. borders to international customers on Nov. 8 to have an incremental benefit.”
The note echoes what other Wall Street analysts have expressed in recent weeks in their discussions with gaming executives in Las Vegas.
The Morgan Stanley note to investors said regional casino activity “as a whole remains robust,” with July the strongest month of the quarter (and year), up 14% versus 2019, August up 3% versus 2019, and September accelerating versus August (but below July and before Louisiana was impacted by Hurricane Ida).
“Following extremely strong second-quarter results and management commentary around July, regional results have come in slightly below our third-quarter forecasts, but we believe this was at least partially driven by weather and California wildfire headwinds,” Allen said. “We lower our forward regional trends slightly to embed risk that less pent-up demand and stimulus checks rolling off will have an impact, though lower expenses could be an upside driver.”
As for overseas, Macau and Singapore both saw incremental increases in COVID restrictions over the past few months, which have negatively impacted Morgan Stanley’s forecasts, describing Asia as weak.
“With Asian governments clearly continuing to take the more cautious approach toward COVID restrictions, we lower our near-term forecasts,” Allen said.
When it comes to Las Vegas Sands, Morgan Stanley said they’ve lowered their third- and fourth-quarter adjusted earnings for Macau driven by the renewed restrictions. They also reduced Singapore to reflect an incremental property shutdown in late September.
Jefferies Equity Research said in its note to investors this week that the recovery in Macau “remains muted,” given multiple setbacks in the easing of travel restrictions. The firm expects Las Vegas Sands management to address proposals published by the Macau government around the concessionary process. It also expects updates on investment initiatives around U.S. digital opportunities since the last earnings report. There will also be an update on the use of proceeds from the pending sale of the Venetian and Palazzo, the note said.
Las Vegas Sands holds its call with Wall Street analysts at 4:30 p.m. Eastern Time.
Back in the U.S., Morgan Stanley said sports betting will be a big focus of third-quarter earnings.
While most companies will give select disclosures on their sports betting operations, Allen said there will be a focus on Caesars Entertainment “ability to take market share following the rebrand of its sportsbook on Aug 2. The company has spent considerably on rebranding and promotions, so we raise our near-term losses, but still expect about $1 billion of losses over the next 2.5 years, in line with management commentary.”
Allen said Penn National recently launched in four new states (Arizona, Colorado, New Jersey, and Virginia), so the focus will be on early traction there.
In its third-quarter earnings look ahead, Jefferies said it’s been a mixed bag for the stock of casino operators, especially large ones, citing exposure in Macau that has weighed down performance.
Golden Entertainment has been the best performer (up 150%), while MGM Resorts International, Caesars Entertainment, and Boyd Gaming stocks are up about 50%, Jefferies said.
“Given these strong performances already and positive commentary, it will likely take more than a modest beat to drive a positive reaction in stock,” said Jefferies Equity Analyst David Katz. “We continue to expect outperformance from names that have multiple ways to grow beyond recovery.”
Jefferies said it expects the labor shortage in the gaming industry to continue in the near term, but anticipates wage inflation to be “long-lasting as a means of competing for, and retaining, a new workforce.”
