Station Casinos posted impressive 4Q22 numbers—if not as impressive to Deutsche Bank analyst Carlo Santarelli as Boyd Gaming‘s. Still, net revenues were up 2% and cash flow improved 3.5% (Boyd did 7% and 13%, respectively.) Santarelli liked Station’s improved margins “as non-gaming revenue growth offset the modest casino revenue contraction in the period.” (Higher ADRs and food prices didn’t hurt.) He continued, “While the results could be perceived as being below recent expectations, we see limited signs of headwinds in the Las Vegas locals market, continued promotional disciplines across the market, and we believe the [Station] development pipeline remains a compelling attribute to the story.” He ratcheted his price target upward from $51/share to $53, applauding the company for having “the strongest organic growth pipeline in gaming.”
Raking in $419.5 million in locals-derived revenue during the quarter, Station profits in the hotel and amenities segments held firm with pre-pandemic levels. Casino revenue did better still, improving on both 2019 and 2021. Jettisoning Palms Casino Resort helped Station further into the black. The company also could pocket a nice chunk of change if it fulfills its intent to sell the 47 acres that comprise the Wild Wild West/Viva site. Station still has $520 million in dry powder to put towards Durango Resort, which Santarelli predicts will open on Jan. 1 of next year (i.e., later than announced). Don’t expect much action on the Inspirada front this year: Station has only allocated $80 million toward non-Durango development.
J.P. Morgan‘s Joseph Greff was even more bullish on Station, upping his price target from $50 to $55. “It’s likely that while the 4Q21 had some negative impact from Omicron it probably had some lingering benefit from stimulus aiding spending, so the year-ago comparison maybe isn’t so easy, in hindsight … All in all, fundamentals remain sound in the LV Locals market, and we think a lot of it has to do with the favorable supply-demand dynamic (reduced capacity since the pandemic and higher average annual income population migration from CA to low-tax/low-cost-of-living areas like Clark County, NV),” he wrote. Softening his revenue projections, Greff modeled Station revenue to improve 2% this quarter and then decline an average of 5% per quarter through year’s end, not the previous -10%. He also modeled an 8% return on investment from Durango Resort in 2024.
Morgan analysts “think the LV Locals market is an attractive near-term and longer-term market, with continued population growth some sort of offset to potential same-store declines.” Greff noted that 158,000 new homes are going up in the Las Vegas Valley by 2038 and that, at present, only 1.5% of mortgages are 90 days delinquent and most of the remainder are of the fixed-rate variety, positive metrics to be sure.
Most cautious of the analysts sampled was Barry Jonas of Truist Securities, who kept a “hold” rating on the stock, saying that most of the cash-flow beat came from one-time infusions and lower corporate expenses. He also wasn’t sanguine about the “continued overhang around the Durango development (for now) in this uncertain macro environment.” Nevertheless, he raised his price target from $45 to $49, still the lowest of the trio. Company bosses “noted trends for the LV consumer remained stable Y/Y, with strong visitation and spend per visit among regional and out-of-town segments consistent with recent quarters. [Station] stated that trends were stable into Q1, with the strong event calendar for Vegas providing additional momentum for forward bookings.”
So far this year room bookings are up 20% and management said it would be “flexible” with ADRs to put heads in beds, which we hope means more consumer-friendly pricing. For now, “elevated costs were also passed through to the consumer or minimized via menu engineering.” Grrrrr. The only substantial cloud on Station’s horizon is the delay of its North Fork tribal development in California, held up by litigation, although a favorable outcome is expected.
Those looking forward to Durango Resort got partial gratification when Station held a hard-hat tour for selected media. We don’t know why Big Gaming keeps conducting these meaningless and supremely uninformative rituals. We’ve been on several on and, whatever the building in question, it might as well be a nuclear reactor from all you can discern. What you can almost never obtain is a tour of the completed resort, with the exceptional exception of Encore, which Steve Wynn and Roger Thomas didn’t preview until it was good and ready to be seen.
If Station met expectations, Wynn Resorts far exceeded them. It generated $219 million in Las Vegas Strip cash flow, instead of the anticipated $186 million, and Encore Boston Harbor yielded $63 million in EBITDA rather than the $59 million Wall Street expected. Wynn Interactive continued to be somewhat of a drag, producing $28 million in negative ROI, $10 million of that attributable to take John “Mattress Mack” McIngvale‘s World Series bets. Observed Credit Suisse analyst Ben Chaiken, “We think the largest takeaway from the quarter and call are the market share gains in Macau, which if sustainable will drive significant upside to numbers. In 4Q, Wynn took share in mass gaming in both Macau and Cotai.”
Santarelli called the Vegas numbers a “big beat” and the Macanese ones “solid … Given the resurgence of Macau, the continued strength and near term visibility in Las Vegas, and what we view as stability at Encore Boston Harbor, our estimates for 2023 and 2024 are higher across each of the 3 geographies. Accordingly, given these revisions, our price target goes to $128 from $106.” Among the metrics he liked in Macao were a 34% improvement in retail sales (remember, the casino operators are under a mandate to diversify the local economy) and 96% hotel occupancy.
Greff’s WYNN price target per share shot all the way up to $131 from $103 on the news. While mass-market play was at 95% of pre-Covid levels, VIP action was a surprise, achieving 140% of its 2019 stratum: “This allowed Wynn to retain its total [gross gaming revenue] market shares versus 2019 despite the demise of the junket VIP segment and generate daily EBITDA of $4m during the holiday (implying an annualized $1.5B).” The exciting forward outlook—$774 million in Wynncore cash flow, $228 million from Boston and $503 million from Macao over the balance of 2023—enabled analysts to draw the curtain on a disappointing Chinese 4Q22: $35 million negative ROI at Wynn Macau and -$24 million at Wynn Palace (above).
Almost lost in the shuffle was Wynncore’s performance: $585.5 million in revenue, driven in part by best-ever ADRs of $492, at 89% occupancy. Casino play was feverish, 69% more coin-in and 43% more table wagering than in 4Q19. Wynn execs teased that 1Q23 could be better still. And sports betting in Massachusetts is off to a strong start, 80% of Las Vegas levels or $500,000 in wagering per day.
Also reporting 4Q22 data was MGM Resorts International and Greff found “lots to like here.” Such as? Dramatically improved market share in Macao (16% last month, compared to the usual 9%—and MGM has the smallest footprint in the enclave), sports events driving visitation along the Strip, an expected BetMGM profit in the latter half of this year and an end to the chimera that was the pursuit of Entain. (Now if only it would abandon the comparably chimerical chase after Japan.) Net revenues of $3.6 billion exceeded Wall Street consensus forecasts by 8%, while $1 billion of cash flow was 10% ahead of The Street. Macao was responsible for $55 million negative ROI but expectations for this year are much improved. By far most of the revenue—$2.3 billion—was derived from Sin City.
Paradoxically, casino winnings were 10% from before the pandemic, with table win flat and slot revenue up 15% on 12% more coin-in. However, both hotel occupancy (+27%) and ADRs (+22%) were well up. Regional casinos chipped in $991 million, which was at least $61 million more than expected. 75%-80% was derived from gambling. Still, food-and-beverage takings were 21% higher and other amenities grew 32%. MGM National Harbor drove most of the 6% improvement in casino winnings. BetMGM lost $432 million in the quarter but insists that it will be ROI-positive a year from now. If you say so.
Santarelli had high expectations for MGM, so he was arguably less thrilled than Greff, writing, “We believe the results easily surpassed the elevated bar. In aggregate, the domestic portfolio, beat our estimates and Consensus Metrix Consensus property level forecasts by ~$116 mm, with Las Vegas providing ~$103 mm of upside, relative to our model.” Trading The Mirage ($42 million in cash flow) for The Cosmopolitan of Las Vegas ($144 million) was an obvious plus. Turning to the future, Santarelli was optimistic: “While CES was down considerably from 2019 levels, it was up meaningfully year over year and with CONEXPO and the NCAA Basketball regional semifinals and finals slated for Las Vegas, the event calendar for the balance of the 1Q23 appears strong.”
He continued, “While articles continue to pop up and dialogue amongst the investment community remains, MGM was fairly forthright in its stance as it pertains to another run at Entain, with management noting that they have ‘moved on.’ While some will say that this serves as a negotiating ploy, we remind investors that the UK takeover laws are rather stringent, and as such, we find it rather difficult to believe another effort is realistic in the near to medium term.”
“Macau pulls a rabbit out of a hat” was Jonas’ reaction to the earnings call. He described himself as “incrementally” positive about MGM, predicated on Vegas outperformance and Macanese “substantial upside.” Executives are “encouraged by early trends at the recently acquired Cosmo with revenue and EBITDAR trending up double digits (annualized) vs. the 12-month period pre-acquisition.” He pegged Strip occupancy at MGM properties at 91% at ARDs of $260/night. Bookings last month were said to be “at a record pace,” further driving up rates.
“With COVID restrictions lifted, MGM is seeing customers return in force to Macau,” Jonas continued. So far this year, “MGM China’s properties are MGM’s highest-earning across its portfolio, generating $5M+ on days around Chinese New Year (1/22) with near 100% occupancy and F&B above 2019 levels.” And the company has been granted 200 more table games in Macao. What’s not to like?
Update: More about Ghost, the dog that was adopted by a pack of coyotes in Inspirada. He’s suffered a great deal but bears no malice. Won’t somebody give him a forever home?
