Analyst Predicts Las Vegas Gaming To See Record Growth This Year

Article by : Erik Gibbs Jan 10, 2024

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Bank of America gaming analyst Shaun Kelley foresees robust top-line growth in Las Vegas gaming demand in 2024, driven by the strength of luxury brands on the Strip.

In the 2024 investment outlook, Kelley rates five gaming stocks as “buy,” four as “neutral” and three as “underperforming.”

Gaming stocks have rebounded to trade in line with mid-cycle and long-term average levels after a November dislocation. Kelley sees a soft landing and Federal Reserve pivot as favorable for the gaming industry, with high free cash-flow yields and post-peak interest rates.

Macau is considered attractive, though visibility is lower. Las Vegas exhibits strong demand, with 5% YoY room rate growth in Q1.

However, core gaming at the lower end shows signs of demand fatigue, leading to projected margin pressure. Kelley expects flat or slightly down EBITDA, with Wynn Resorts performing well at the high end.

Bank of America projects 2% growth in Las Vegas gaming revenue in 2024, surpassing the 1% growth anticipated for regional gaming.

Macau is anticipated to experience a 20% growth in gaming revenue, with a modest 4% increase expected from the fourth quarter of 2023, according to Kelley.

Regarding online gaming, Kelley predicts an 18% rise in gaming revenue in 2024. However, this performance might be more concentrated in the latter half of the year due to full valuations, shifts in shares and promotional concerns in the initial months.

The first half could witness the resolution of joint ventures like BetMGM, ESPN Bet and Fanatics, making way for more profitable business models and increased leverage on fixed costs in the second half.

MGM Resorts is positioned as a central player in this narrative, with a potential resolution of the BetMGM joint venture for its 50%-owned stake with Entain.

Penn Entertainment is actively launching ESPN Bet, starting in November, and akin to Entain, has an activist shareholder in H.G. Vora, holding a substantial 18.5% interest. BofA upgraded Penn’s shares in December, citing better-than-expected initial adoption of the ESPN Bet app.

DraftKings is poised to achieve a significant milestone by turning EBITDA and free-cash positive in 2024, marking a substantial achievement, as highlighted by Kelley.

However, the initial half of 2024 may experience volatility due to investor concerns about escalating competition.

Factors contributing to this concern include the recent introduction of ESPN Bet, Bet MGM’s renewed promotional emphasis and Flutter’s new US listing.

Kelley acknowledges that Caesars Entertainment, despite its deleveraging efforts through the asset sale of Centaur Holdings, remains among the equities with higher risk-reward profiles. Caesars underperformed in the year-end risk-on rally.

A potential catalyst for Caesars in 2024 is the anticipated sale of Centaur to VICI Properties. Red Rock Resorts is strategically concentrating on the successful launch of Durango Casino & Resort in December.

The launch received positive early reviews and traffic indicators, positioning the property to achieve or surpass $150 million-plus of EBITDA and a robust, nearly 20%, internal rate of return.

Boyd Gaming has demonstrated prudent capital allocation, boasting the highest free-cash-flow share growth since the pandemic and maintaining the lowest net-leverage level in the gaming sector.