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!
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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.
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 are initiating coverage of BYD with an Outperform rating, and a $37 YE19 target. We are positive for four key reasons: 1) we believe BYD offers the most attractive valuation in the regional gaming space, and BYD owns most of their assets, 2) we see upside to margins, which are below peers on a tax-adjusted basis, 3) BYD has growth drivers from synergies, favorable demand trends in Vegas, sports betting, and potential additional M&A (i.e. picking off any potential divested CZR assets), and expectations seem low, and 4) we expect a double-digit free cash flow yield, with opportunity to begin aggressively returning capital.
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.