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Casino stocks could be crippled by weak consumer spending

Posted on: June 27, 2022, 12:13 p.m.

Last update: June 27, 2022, 12:37 p.m.

Casino stocks are plummeting this year, and that scenario could worsen as inflation weighs on consumer spending. Some experts say this is already happening.

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The Las Vegas Strip. Casino stocks could be penalized by high inflation. (Image: CNN)

Citing a 0.3% drop in retail sales in May — and a dismal report on consumer sentiment from the University of Michigan this month — Goldman Sachs says there are signs that U.S. households are starting to get their bills under control. expenses. This could be bad news for casino operators, who rely on discretionary spending.

Weaker consumer spending poses a threat to earnings for consumer discretionary stocks and the automotive industry group in particular,” depending on the bank. “Used car prices are down 6% since January, a sign that overall demand for vehicles may be weakening. The consensus expectation of industry sales growth of 13% in 2023 seems Pollyannaish.

Consumer discretionary – the sector where casino stocks reside – is one of the worst performing groups this year. The S&P 500 Consumer Discretionary Index is home to several well-known gaming stocks, including Las Vegas Sands (NYSE:LVS), MGM Resorts International (NYSE:MGM), Caesars Entertainment (NASDAQ:CZR), Wynn Resorts (NASDAQ:WYNN) and Penn National Gaming (NASDAQ:PENN).

Inflation could put casino stocks in trouble

May’s reading of the consumer price index (CPI) hits a staggering 8.6% – the highest level in 40 years – and with the second quarter earnings season looming in July, the analysts believe inflation commentary will increase on gaming industry conference calls.

Some gaming executives are already pointing to signs of inflationary pressures weighing on customers. For example, Circa founder and CEO Derek Stevens said last week that over the past 10 weeks his company has seen the effects of inflation as customers cut spending on drinks and games. slot and table machines.

The private company owns Circa, the D, Golden Gate and the Downtown Las Vegas Events Center.

Last month, Hard Rock International CEO Jim Allen said high gas prices could tempt some potential casino visitors to stay home. Soaring producer prices mean that operators face high costs when it comes to renovating sites.

Maybe some hope for casino stocks

The issue of high fuel prices is a potentially big drag on gambling operators, and while the Biden administration is pushing a federal gas tax holiday, politicians on both sides of the aisle are calling it nothing. more than a gimmick. In fact, President Obama said so during the 2008 election campaign.

In particular, regional casino operators are vulnerable to soaring gas prices, as many of their patrons drive to these venues and do not stay overnight. Still, Goldman Sachs sees an opportunity for stocks to rebound, even as households liquidate their equity positions amid rising interest rates and falling stock prices.

“The S&P 500 has risen 8% on average in the years since 1950 when households sold stocks most aggressively,” note the bank.