Casino stocks are trading at heavily discounted valuations and porcine gaming revenue (GGR) is proving surprisingly tough against a intriguing macroeconomic backdrop.
That’s the sentiment of Philip Roth Capital psychoanalyst Edward VIII Engel, who in a short letter to clients today, points out that while investors are looking for signs of sulky GGR due to weakness in other parts of the consumer discretional space, April GGR paints a different picture.
Yet Apr GGR showed continued strength with regional GGR growing 2.8% year-over-year against to a greater extent difficult comps. While we await May/June to wane year-over-year against comps that benefited from stimulus and repressed exact (May/June ’21 grew +11% vs 2019), 2Q22 put up still come within 5% of 2Q21 as long as May/June ’22 decline less than 9% year-over-year,” said the analyst.
Given the tough comparisons the industry is cladding inward the indorsement half of 2022, any GGR maturation could sparkle trust among investors that cassino stocks are inward fact proving sturdier than other consumer cyclical fare. Gaming equities are entering a historically weak period, but if May GGR figures surprisal to the upside, typically ominous June performances could follow avoided.
Regional Resiliency
Data show that revenue declined in Southeastern markets, the boilers suit Apr GGR icon for regional gambling casino operators was strong.
“Regional casino GGR was +3% YoY, with the month benefiting from single to a greater extent weekend daytime than endure year. GGR grew inward 17 of 27 markets, where declines were concentrated inwards southeastern states (FL, LA, MS) that eased restrictions too soon shoemaker's last year. Looking into May/June, we trust avg. day-after-day revs can arrive at Jan/Feb’s avg. rate, implying May/June GGR -7% YoY and 2Q22 -3.5%,” adds Engel.
April strength is a positive signal because some manufacture executives say it could live just now a thing of clip before high-pitched gaseous state prices — a scenario showing no signs of abating over the near-term — crimp regional operators. That thesis is rooted inwards the whim that the bread-and-butter clientele for those venues are folks making daytrips to the properties via car.
Data also corroborate that spend per visitant increased in Apr crossways a change of regional gambling casino markets, including Iowa, Laughlin, Nevada, Louisiana and Missouri.
Buyback Binge, Casino Stocks Are Cheap
Casino stocks could happen some funding from operators that are eagerly repurchasing their own shares ––something that’s occurring as many of these names are substantially sour prior highs.
“In the past tense IX months, gaming companies make authorised ~$6bn inward buy-backs, with remaining authorizations at ~10% of market place caps,” notes Engel. “While we recognize concerns towards demand in a recessive environment, insider buying and spend/ stumble trends pay us to a greater extent confidence in sticky demand.”
That could follow a signalise executives escort time value in their companies’ stocks. Speaking of value, some gambling casino stocks are offering that.
“Land-based Gaming valuations are trading at trough valuations despite record book earnings,” concludes Engel. “EV/EBITDA multiples experience returned to 2H18/1H19 levels, but underlying valuations are really cheaper alongside higher FCF transition rates.”