Las Vegas locals casinos will maintain stability and resilience in the upcoming second-quarter earnings, according to Truist Securities analyst Barry Jonas. In his July 16 investor note, Jonas conveyed optimism regarding multiple sectors of the U.S. gaming industry, though he acknowledged that Las Vegas itself faces a challenging summer.
Jonas issued a Buy rating for Station Casinos, expressing expectation of a strong Q2 performance with potential for further growth. Conversely, Golden Entertainment faced a Hold rating due to softness at the Strat and absence of merger activities. Churchill Downs and Station were highlighted for their quality assets, and cash flow stability was a strong point for Vici Properties and Gaming & Leisure Properties.
Las Vegas Locals Casinos: A Bright Spot Amid Challenges
Las Vegas locals casinos benefited from a 2% increase in local gambling revenue during the second quarter, demonstrating resilience. Station and Boyd Gaming are anticipated to beat cash-flow targets by 5% and 4% respectively, although Golden may miss its forecast by 4%.
Jonas emphasized Station’s promising prospects, noting favorable population trends and the company’s stronger-than-expected performance. He noted, “The locals market appears well-positioned, benefiting from a continued flight to quality.” Station’s properties, viewed as top-tier by former Vegas locals, are thriving.
The removal of tip taxes is expected to boost revenues up to $85 million, and construction disruptions were less severe than anticipated. Jonas revised Station’s stock target to $67 per share, up from $45.
Challenges and Opportunities in the Gaming Industry
Competition in promotions has been a pressure point for Golden Entertainment’s tavern business. Competitors have doubled spending on free-play promotions, but Golden remains committed to its strategy despite the promotional environment.
Market conditions led to speculation on changes in taxation and the regulatory landscape, particularly in Pennsylvania. States might consider removing promotional tax deductions before moving to igaming. This has created an uncertain outlook for digital gambling platforms like DraftKings and FanDuel, amid increasing tax rates.
Real estate investment trusts (REITs) like Vici and GLPI are adapting to the evolving market, which is marked by challenges in mergers and acquisitions. Delays in Bally’s Chicago project, under GLPI’s management, have added to the investment climate’s uncertainty.
Finally, analyst David Katz from Jefferies Equity Research supports Jonas’s view on Las Vegas, noting that “most bad news is already baked into shares.” He foresees a muted summer for Strip operators due to ongoing construction, but sees potential in the entertainment slate for the fourth quarter and beyond.
