Casino events

Regional casino’s third-quarter earnings could impress, says Roth Capital analyst

Posted on: October 5, 2022, 12:49 p.m.

Last update: October 5, 2022, 4:39 a.m.

The third-quarter earnings season begins in earnest next week, and the downtrodden stocks of regional casino operators could give investors something to talk about. The group’s gross gaming revenue (GGR) trends remain strong.

regional casino
A slide from an earnings presentation from Golden Entertainment. An analyst is bullish on regional casino earnings in Q3. (Image: Golden Entertainment)

This, despite expectations to the contrary, prompted analysts earlier this year to issue downward revisions to the GGR for the second half of a large number of regional casino operators.

In a note to clients, Roth Capital analyst Edward Engel said recent comments from management suggest demand trends were flat from July to September. This supports the idea that the third and fourth quarter GGR should surprise on the upside, paving the way for earnings before interest, taxes, depreciation and amortization (EBITDA).

The regional GGR increased by 1.9% YoY in August, with a GGR growth rate of +0.5% YoY in 3Q22. August’s year-on-year growth ended the June/July streak of year-on-year declines. August 2022 had one less weekend day than last year, although calendar changes were neutral for September. We model Seven GGR + 1% YoY, which would put 3Q growth in line with 2Q growth + 0.5%,” Engel noted.

With a deluge of casino company profits coming in the coming weeks, some on Wall Street are constructive toward the group, including Las Vegas-centric and regional operators. They argue that some of these stocks were wrongfully repudiated this year.

Cautious on Penn

As the largest regional casino operator, Penn Entertainment (NASDAQ: PENN) can be seen as an indicator for the group. But Engel urges caution on the name, noting that there are “red flags” to consider.

“As 2022 approached, investors were wary of new competition cannibalizing PENN’s market share in some markets. 3Q demonstrated this, with significant declines in GGR in Pennsylvania and Illinois,” the analyst said. “We are also concerned about Penn Interactive’s EBITDA losses in Q3 as Penn invests in ramping up some new markets (Louisiana, Kansas, Ontario).”

The analyst also noted that even ignoring the money Penn is spending on what appears to be an ill-fated business on California’s Proposition 27, a slight increase in losses could amplify investor concerns about Penn’s ability to generate. profits in its iGaming/sports betting unit. .

In more encouraging news, Penn’s promotional spending has long been lean by industry standards, and that precedent remains in place today. The company also invests in important regions to strengthen its market share.

Regional Casino Names to Consider

While Engel wasn’t bullish on Penn, he pointed to some opportunities among regional casino stocks, including Golden Entertainment (NASDAQ: GDEN). The company is in the process of selling the Rocky Gap Casino Resort in Flinstone, Maryland, which will make it a Nevada-only operator.

“We like the setup of GDEN in Q3 results, where Southern Nevada continues to be one of the best performing markets post-pandemic, with July/August GGR up 25% over 2019. As citywide events resume this fall and compress midweek hotel rates, we expect GDEN’s Strat bookings to continue to regain lost room nights since COVID,” the analyst added. .

As for Full House Resorts (NASDAQ:FLL), he says the story largely revolves around the opening of new locations in Colorado and Illinois. On Century Casinos (NASDAQ: CNTY), Engel notes that the operator’s third-quarter results could be hurt by currency headwinds due to its exposure to Canada and Poland.

It has “buy” ratings on Century, Full House, and Golden Entertainment while calling Penn “neutral.”