Vegas Strip fundamentals have been mixed YTD, though we still think better than the sentiment. We see potential for revenue reacceleration in 2020 due to several tailwinds, which we’ll discuss and quantify, and we’ll also discuss some potential risks.
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For our Weekly Sho we've recorded a 20-minute video with 36 slides highlighting our current views as we head into another earnings season. The cruise line section begins at 4:03, the lodging section begins at 9:00, and the gaming section begins at 15:40. Enjoy the rest of your weekend!
This morning (7/11/2019) ERI announced it’s selling two owned properties – Isle of Capri Casino Kansas City and Lady Luck Casino Vicksburg – to Twin River (TRWH – Not Covered) for a total of $230M, which according to TRWH represents an 8.4x LTM EBITDA multiple, which we believe is accurate.
Our coverage is up 24% YTD, on average, which is modestly outperforming the market. However, our coverage remains 21% below 2018 highs, on average, and also 10% below 2019 highs, on average, all while the market is near an all-time high. Our coverage mostly remains out-of-favor, in our opinion, but we see some opportunities. Within lodging our best idea is VAC. Within gaming our best idea is ERI. And within cruise our best ideas are RCL/NCLH.
May Vegas Strip GGR was released this morning which showed a decline of -11% y/y – entirely driven by continued weak baccarat play – below our expectation of -5% y/y. Had the month played in line with normal hold the result would have been in line with our expectation. Strip RevPAR was released this afternoon which showed an increase of 7.3% y/y, above our expectation of flattish. For the entire 2Q we estimate CZR Vegas revenue to be flat y/y and MGM Vegas revenue to be down slightly y/y. MGM Vegas and total consensus EBITDA for 2Q still seems too high to us, and CZR Vegas and total consensus EBITDAR for 2Q generally seems OK to us.
Today ERI (6/24/2019) announced they will acquire CZR at $12.75/share with $8.40/share in cash and the rest equity. We think most assumed ERI would pay no more than $12/share, which is part of the reason we believe ERI traded down 11% today. We think today was a news selling day for event-driven investors and we think arb pressure contributed to the weakness as well. We thought the terms and synergies were favorable and we use today’s weakness as an opportunity to upgrade the stock. Valuation is attractive, we see upside to the synergy target, and we believe in this management team to execute given their track record.
Wolfe Research Senior Leisure, Gaming & Lodging Senior Analyst, Jared Shojaian, hosted a webcast to discuss why ERI is now our top pick in gaming, why the stock traded down 11%, potential additional asset sales, and upside and downside scenarios.
In this week’s piece we discuss 1) the reaction after CCL’s results, the read-through to RCL and NCLH, and what we’ve heard from our conversations; 2) some additional thoughts on the ERI asset sales as it pertains to ERI/CZR; and 3) why we think HGV’s stock has materially outperformed in recent weeks. Please click the link above for the full report.
This morning (06/17/19) ERI announced it’s selling three owned properties – Mountaineer Casino Racetrack and Resort in New Cumberland, WV; Isle Casino Cape Girardeau in Cape Girardeau, MO; and Lady Luck Casino Caruthersville in Caruthersville, MO – for a total of $385M.
In this week’s piece we discuss 1) our observations of investor sentiment and feedback following our regional gaming initiation, 2) our thoughts on insider selling activity in the cruise line space, 3) our thoughts on insider purchase activity at MGM, and 4) China total social financing for May, and the implications for Macau GGR. Please click the link above for the full report.
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