Las Vegas Strip revenue and EBITDA expectations still seem modest, and expectations seem particularly low for 2020, even though this earnings season seemed to indicate solid trends with both CZR and MGM beating consensus Vegas estimates and speaking positively on demand. We have a positive outlook for the Las Vegas Strip from now through year end 2020 due to a favorable event calendar, still limited rooms growth, easy comparisons, and we think expectations that seem low. We’ll discuss with charts. Please click the link above for the full report.
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PENN reported 2Q earnings this morning (8/1/19). Adjusted EBITDAR was $406M, above our $398M and consensus of $394M, driven by healthy same-store growth partially offset by headwinds from weather and one-time expenses. FY19 guidance was slightly above our expectation and we think the consensus expectation, and it sounds like demand trends remain firm. The stock was initially up 8% in early trading before reversing and closing down 2% as the tape turned, which we think illustrates how in the last twelve months the stock has traded more on the macro and less on fundamentals.
June Vegas Strip GGR was released this morning which showed a surprising increase of +17.7% y/y versus our expectation of -2.0% y/y driven by very high hold. Had the month played in line with normal hold then the result would still have been up around 5% y/y, ahead of our expectations. June Vegas Strip RevPAR was then released this afternoon which showed an increase of 4.8% y/y, which was below our expectation of around 10%. Overall, it was a good month for the Strip, and it appears 2H is shaping up well per MGM, and we believe 2020 is setting up to be a strong year, too, with many tailwinds.
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.
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!
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.
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.
We’re initiating coverage of PENN with a Peer Perform rating. PENN seems inexpensive, and there are potential growth opportunities and synergy capture to drive EBITDAR growth. However, there are some important challenges including new competition, merger integration, already high margins, and most importantly PENN is near 6x net leverage with an Op-Co model, which we think creates meaningful downside risk for the stock.
Wolfe Research Senior Leisure, Gaming & Lodging Senior Analyst, Jared Shojaian, hosted a webcast to discuss his initiation on the regional gaming industry. Topics included why BYD is our top idea in regional gaming, upside and risks from a potential ERI+CZR combination, what to expect with these businesses later in the cycle, the bull/bear debates for each stock, and the sports betting opportunity.