In this week’s piece we discuss some topics from the week, including 1) poor stock performance driven by coronavirus, including many stocks who have limited exposure to China; 2) a new CFO at PENN; and 3) an update on the timing of Japan gaming and how investors don’t seem very focused on the Japan opportunity, currently.
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As we begin a new decade, we look forward with ten predictions for our coverage over the next ten years. We also look back at the top ten themes that characterized the last decade for our coverage, which resulted in meaningful change.
We last published about the rapid spread of coronavirus on Monday (1/20/20) after the first scare. The issue has escalated, and overnight China ordered travel agencies to suspend travel tours. Again, the timing is unfortunate because the Chinese New Year week-long period just began. China has seemingly been aggressive in its efforts to combat the coronavirus with travel suspensions, as they were blamed for a lack of transparency during SARS in 2003, but it also now appears that there could be a meaningful impact to 1Q earnings for those exposed to China.
RRR pre-reported 4Q this AM (1/23/20) with its $500M notes offering. Adjusted EBITDA in 4Q is expected to be $133.6M-$141.6M, which is higher than consensus and our prior $128M estimate due to better than expected margins, with revenue expected to be $447.4M-$474.2M which is slightly below our prior estimate of $470M. The stock closed up roughly 6% today.
In this week’s piece we discuss several topics from the week with charts, including 1) our near-term view on MGM following recent monetization, which we think will allow them to return 17% of the market cap to shareholders in 2020; 2) PENN’s rumored acquisition of Barstool Sports; 3) updates on the ERI/CZR merger; 4) read-throughs from airline earnings; and 5) leading indicators for Macau GGR.
The coronavirus in China has been spreading, and has been confirmed to be transferable between humans, which has caused new concerns. In the most recent update on Monday (1/20/20) the number of coronavirus cases had risen above 200, up from 41 since early January, and it appears to have spread to some other Asian countries. It’s also resulted in at least three deaths currently. This scare seems to have caused Hong Kong listed Macau gaming stocks to decline ~6% overnight. The timing is unfortunate because the Chinese New Year week-long holiday period begins January 24, which is a key travel period. This could be nothing, or it could be something, but at the least there could be an impact to Chinese New Year travel.
Each month we track several indicators, which have historically led Macau GGR growth by several months. The data points for the most recent month show 10 of the 19 y/y indicators are better than the prior month versus 14 of 19 last month. We chart each and we show a summary table in Exhibit 1.
MGM announced today an agreement to sell the MGM Grand Las Vegas real estate to a JV between MGP (50.1%) and Blackstone Real Estate Income Trust (49.9%). The transaction is valued at ~$2.5B or 15.75x rent and MGM will receive ~$2.4B in cash and ~$85M in MGP OP units – we assumed a $2.8B valuation at 15.5x rent. The JV will also acquire the real estate assets of Mandalay Bay from MGP and will lease both properties to MGM.
This morning (1/13/20) ERI announced it’s selling the Eldorado Resort and Casino in Shreveport to Maverick Gaming for $230M. We estimate the property does ~$33M of annual EBITDA (<1% of our pro forma ERI/CZR EBITDAR). This would imply an unexciting ~7x multiple, but that also seems OK to us considering this is a dock-side property in Louisiana where its LTM GGR is down 8.5% y/y.
Today we downgrade shares of CHH from Peer Perform to Underperform and establish a YE20 downside target price of $87, which is based on 14x our 2021E EV/EBITDA.
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