Each year around this time we dig through annual proxy statements to learn about changes in corporate governance and shareholder alignment, and we publish the results. Specifically, we study three broad categories: 1) CEO compensation, including how much and how it’s derived, 2) CEO equity ownership, and 3) board composition. We gave each company a qualitative score for each category and aggregated the results in Exhibit 1. Every company has areas of improvement, in our view, but HLT and WYND scored best based on our qualitative aggregation, followed by VAC, NCLH, and WH. All five are companies we think to be commercially aggressive and shareholder focused
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In this week’s piece we discuss five ideas with five charts, including probably way-too-early hurricane forecasts for the upcoming Atlantic hurricane season as it relates to cruise lines; NCLH’s recent consistent beat and raise execution, and what that hasn’t meant for the equity multiple; why VAC’s planned analyst day later this Fall seems positive; RevPAR index gains for brands, who seemingly took RevPAR share from independents in 1Q, which we believe is positive for the long-term model; and softer Chinese credit data in April, and what that might mean for Macau GGR. Please click the link above for the full report.
Last week was a busy week filled with cruise, gaming, and lodging earnings reports. In this week’s piece we highlight ten key themes with several charts. Please click the link above for the full report.
After the close CZR reported 1Q earnings and hosted their call. The quarter beat us and consensus, on what seemed like better managed expectations following misses in prior quarters. The call was constructive, we thought, with positive demand commentary and enough color to imply that consensus estimates for 2019 might be a little low. CZR’s new CEO gave a short prepared statement, but was not available for Q&A.
March Vegas RevPAR and visitation data were just released this afternoon which follows the GGR report from yesterday. March Strip RevPAR declined 1.3% y/y, which is about what we expected. We think investors were braced for something similar after seeing LVS’s 1Q results. That is, LVS reported 1Q Strip RevPAR growth of 1.6% y/y, when Jan/Feb combined for the industry was up 8.0% y/y. March absolute RevPAR increased 8% m/m from February, which is normal seasonality excluding CON/AGG years, so we wouldn’t read into what might look like a bad headline number. Yesterday we learned Strip GGR declined 3.8% y/y, which was similar but slightly below our expectations.
Late Sunday night the WSJ reported that CZR is in talks to hire Tony Rodio as its next CEO. Recall CZR and Carl Icahn had until April 15 to reach an agreement on a new CEO or else Carl Icahn would receive a fourth board seat. Tony Rodio was only recently hired to be CEO of privately held regional casino operator Affinity Gaming back in October of last year, and previously he was CEO of Tropicana since 2012 while Carl Icahn was involved and up until Tropicana was sold to ERI (not covered, and also a reported interested party in acquiring CZR), and he has apparently been on Carl Icahn’s wish list of CEOs for CZR to hire.
This is a deep dive report we write each quarter where we update our thesis with new charts and preview each company and update estimates into earnings. Since the Christmas Eve bottom the average of our coverage is up 32%. The absolute risk/reward now seems less compelling, but the S&P 500 is also up 22% since the bottom, and our coverage is higher beta and already meaningfully underperformed the market last year.
March GGR was released overnight, showing a decline of 0.4% y/y, versus consensus of we think -4%. Coming into the month we think consensus was flattish to up slightly, but expectations seemed to soften as the month progressed, so the final result was similar to initial expectations but better than the recently lowered expectations. GGR for the entire quarter declined 0.5% y/y and 3.3% q/q, we think driven by VIP softness from the new smoking ban, soft macro data, and tough comps. We’re lowering estimates for our Macau coverage slightly. Macau still seems challenged to us in the near-term, and the comp gets even tougher in April, but the forward-looking macro data offers some hope, including a better China PMI reading last night, which leads GGR by four months at +0.62 correlation.
For our weekly charts this week we provide an update on IMO 2020 given on-going fluctuating fuel prices as well as some recent and potentially overlooked news on scrubber policy, which could become problematic for CCL. We’ll discuss and later in Exhibit 1 and Exhibit 2 we’ll quantify the potential impact to fuel expense. Please click the link above for the full report.
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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