Despite a turbulent week on Wall Street, overall mediocre second-quarter 2024 results, and a year-over-year decline in many Las Vegas casino stocks, the gaming and hospitality industry is doing quite well, according to one analyst.
Chad Beynon, senior analyst at Macquarie Capital, said Las Vegas’ once extremely cyclical casino sector has stabilized over the past decade, and recent market moves may reflect outdated investment concerns from the global financial crisis rather than the current state of affairs.
“I’m pretty comfortable with the sector’s valuations,” Beynon told the Las Vegas Review-Journal. “There are still a number of buy recommendations and we believe consumer spending, particularly in the mid- to high-end segment, will continue.”
Gambling stocks with direct ties to Las Vegas casinos plunged along with the rest of the domestic financial markets on Monday as the investment community reacted to a weak July jobs report. Markets recovered on Tuesday and Wednesday before seeing some reversal on Thursday.
Beynon said the gaming and hospitality industry is subject to several market factors that affect its performance, most notably consumer behavior. Casinos and travel fall into the discretionary spending category for most people and are among the first to be cut when larger economic factors such as inflation and high interest rates begin to affect their everyday spending habits.
“I think some people are pulling back,” Beynon said, noting that second-quarter earnings reports from most of the major Las Vegas casino companies suggest the drop in spending is not coming from the casinos’ target demographic. “So it feels like spending is slowing down a little bit, but I think the core customers, the mid- to high-end customers, are still doing pretty well.”
In June, Nevada casinos reported the highest monthly gambling profit in the state’s history – $15.8 billion. Visitor numbers in Las Vegas increased by almost 2 percent in June 2024 compared to the same month last year.
Non-gambling spending, such as entertainment, hotels and restaurants, is more likely to be curbed by Las Vegas visitors than gambling budgets, he said.
“The Strip saw a 5 percent increase in gaming revenue in the second quarter compared to a year ago,” Beynon said. “So there hasn’t been a real slowdown in gaming spending. I would say it’s more on the non-gaming side to begin with.”
If there are any concerns, they may be due to looking ahead, Beynon said.
Summers in Las Vegas are typically quieter due to the weather. This summer’s record-breaking heat will likely impact third-quarter results, as some travelers may have been spooked by temperatures that exceeded 115 degrees for extended periods in July.
“It’s always difficult to really analyze the summer months (in Las Vegas),” he said.
Recent comments from Las Vegas casino executives regarding fourth-quarter forecasts were also on Beynon’s radar.
Bill Hornbuckle, president and CEO of MGM Resorts International, said during a quarterly earnings call earlier this month that hotel bookings and ticket sales for this year’s Formula One race in November felt “weak.” Tom Reeg, CEO of Caesars Entertainment, said the success of this year’s Las Vegas Grand Prix for Strip operators will depend on prices, which he and others have acknowledged will be very high in 2023.
“There are doubts about the fourth-quarter comparables because of Formula 1,” Beynon said. “And I think MGM has raised some alarm among investors that the fourth quarter could be difficult.”
Beynon remains optimistic about the growth prospects for Las Vegas casino operators in 2024 and 2025.
“Caesars and Wynn (Resorts) expect modest growth (in the second half of the year). MGM expects growth in the third quarter,” he said. “I feel pretty good about that. Everything else is indicative of how we see the (Las Vegas) market.”
Contact David Danzis at [email protected]. Follow @AC_Danzis on X.
