Posted on: July 12, 2023, 03:36h.
Final up to date on: July 13, 2023, 01:15h.
Second-quarter earnings season kicked off this week, and it’s only a matter of days earlier than gaming firms step into the earnings confessional.
In mixture, gaming equities lagged the S&P 500 within the first half of the 12 months. However Churchill Downs (NASDAQ: CHDN) and MGM Resorts Worldwide (NYSE: MGM) might be among the many business’s winners in earnings season and past. That’s the take of Macquarie analyst Chad Beynon, who highlighted that pair, amongst others, in a wide-ranging report back to shoppers on Wednesday.
As we glance into 2H23E, we anticipate Gaming inventory outperformance given steady fundamentals and discounted valuations,” wrote the analyst. “Traditionally, the sector has sturdy macro correlations, however fundamentals have not too long ago outpaced inflation given general wealth creation significantly with older age cohorts.”
Revealed Wednesday, the June studying of the Client Value Index (CPI) confirmed a rise of simply 0.2% on a month-over-month foundation, which is lower than economists anticipated. Whereas rampant authorities spending compelled inflation to multi-decade highs final 12 months, it’s now cooling, and that easing might be a plus for the Las Vegas Strip and regional on line casino operators.
Churchill Downs: Regional Standout
Whereas Churchill Downs has no Las Vegas Strip publicity and there are lingering considerations concerning the state of the U.S. horse racing business, the inventory is a gaming favourite on Wall Road.
Beynon anointed the inventory one among his prime concepts for the second half, calling it a standout amongst regional gaming firms as a result of a sturdy pipeline and a projected three-year compound annual progress charge of 20%-plus. That’s the best within the analyst’s protection universe, excluding Macau on line casino equities.
Along with the continued ramping of property that got here on-line final 12 months, different drivers of the Churchill Downs funding thesis embody enhancements at its eponymous, storied Kentucky racetrack, in addition to historic horse racing machine (HRM) and regional on line casino growth throughout a number of states.
“This well-diversified progress contains 1) Flip 1 expertise; 2) DCG growth/resort; 3) LA HRMs in OTBs; and 4) DCG Downtown Louisville, along with ramping property from 2022. In 2024, we anticipate $190m+ of extra challenge return EBITDA from 1) the Paddock challenge; 2) Queen of Terre Haute, 3) P2E progress (Dumfries, Rosie’s Emporia, different HRMs); and 4) Chaser’s (NH), in addition to $35m from the Exacta Methods deal,” noticed Beynon.
Vegas Vibes Robust for MGM
Up 40.35% this 12 months, MGM is likely one of the gaming equities outpacing the broader market — a efficiency pushed partially by the resilient Las Vegas Strip, in addition to the Macau resurgence.
Beynon lauded the operator for “upmarket” strikes in Sin Metropolis, together with the acquisition of Cosmopolitan and the sale of the Mirage. These transactions enhance MGM’s leverage to luxurious shoppers which are usually much less weak to financial downturns. The analyst added that BetMGM is flourishing, and mentioned buyers is probably not absolutely appreciating the operator’s Macau publicity.
“For digital, we anticipate BetMGM to develop income ~35% in 2023 and proceed to consider there are alternatives to unravel for the 50/50 stake. With one of many strongest stability sheets, supportive shareholders, and a purpose to be a worldwide digital chief, we anticipate this chance to unravel the stake problem to be a precedence,” concluded the Beynon.
Translation: MGM owns 50% of BetMGM, with Entain controlling the opposite half. However the former now has the sources to doubtlessly purchase the latter out of that association.
