Macau February GGR was released overnight, showing 4.4% y/y growth, which we think was roughly in line with a wide range of expectations, but lower than many of the expectations coming into the month after what appeared to be a softer Chinese New Year. When combining Jan/Feb to neutralize for the holiday timing GGR declined -0.5% y/y on a tough comp. Our initial expectation is March could be flat to up slightly y/y, which implies flat to down slightly daily GGR from Jan/Feb in line with long-term seasonality. There are no changes to our estimates, and our summary file with historical GGR data is updated here.
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Timeshare stocks have rallied hard since the Christmas Eve bottom, with VAC up 61%, HGV up 33%, and WYND up 39% versus the S&P 500 up 19%. However, the stocks still remain well off their 2018 highs. For example, VAC remains 35% below its prior high and HGV remains 31% below its prior high, and it’s been entirely a function of multiple contraction. Interestingly, the S&P 500 is now only 5% below its prior high and credit spreads have narrowed considerably.
CZR reported 4Q and hosted its call after the close (02/21/19). The quarter missed us and consensus, and the commentary on the call implies 2019 EBITDAR estimates need to come down.
We compared 4Q earnings reports from Las Vegas Strip companies to the reported industry data, and we think the conclusion is CZR likely outperformed peers and gained market share during 4Q. CZR’s peers have all reported earnings, while CZR will report this week on Thursday (02/21/19).
Last night (02/14/19) the WSJ published that Carl Icahn has built a 10% stake in CZR (apparently a combo of stock and swaps) and he plans to push CZR to consider a sale, which follows news on 1/11 that he had initiated a position. The article also mentions that in the past several months management from ERI (not covered) had approached CZR about a possible deal but talks went nowhere. An ERI combination would be the most ideal scenario, in our view, as we talked about previously here.
We aggregated pricing trends across multiple vacation options/destinations including cruise lines, Las Vegas casinos, hotels in multiple global markets, airline fares, Disney resorts, ski resorts, and rental cars. The purpose of our analysis was to compare pricing trends for cruises and Las Vegas casinos to alternative vacation options to understand if recent years of pricing strength may begin to make substitute vacation options more attractive, which some investors have expressed to us.
Earnings season has really just begun for our coverage, with only three companies reporting thus far (LVS, WYNN, and RCL). We have 10 observations to highlight with 10 charts, including takeaways from our earnings, read-throughs from other industries, and other non-earnings developments within our coverage.
December Vegas data was released today (01/31/19)(GGR in the AM and all other data just came out in the PM). Strip GGR was down 0.9% y/y, versus our estimate of up ~5% y/y, driven by weak hold. Had the industry played in line with normal luck then GGR would have been up about 13% y/y, well ahead of our estimate. Shockingly, Strip RevPAR was up 15.7% y/y, versus our conservative guess of flattish (the data is very volatile). Our summary file of gaming data we track is included with a link to this email with historical data.
This is a 35 page note we write each quarter where we update our thesis with new charts and preview each company into earnings. In this note we’re examining estimates and multiples during prior recessions as guides for possible downside scenarios. For our coverage we see binary outcomes: either a brewing recession or meaningful outperformance. The risk/reward setup to us seems more favorable for the latter, as our stocks seem to have already discounted a recession with over 50% likelihood, in our view, which we’ll show in the note.
Shares of CZR are down over 50% from the 52-week high, even after a rally in the last couple weeks. The stock traded particularly bad during market turmoil in the last few months, as expected, given it’s a higher beta stock with leverage. Still, over this time period there have been some positive developments like activism, M&A rumors and an offer from Tilman Fertitta, CEO change, and improving industry trends in Las Vegas. However, right now there is also still a lot of uncertainty regarding future management, given the announced CEO change with no replacement announced. The current CEO’s tenure was recently extended from February to April, and CZR has paid out cash awards to a few executives “to encourage the retention of certain key executives through the transition to a new chief executive officer,” which altogether could be viewed as somewhat concerning for the search process.
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