Brick-and-mortar gaming revenues throughout the country have been choppy . It will be important for companies to show they can grow overall in this environment .
FANTINI ’ S FINANCE
Show Me the Money
Growth stories need to be written — and demonstrated — by the companies
BY FRANK FANTINI
As we head into fourth-quarter earnings season , the theme for investors in casino stocks might be “ Show me the money .”
With a couple of exceptions , namely Red Rock Resorts and Churchill Downs , no operator company appears to have a clear and compelling growth story . That doesn ’ t mean there isn ’ t growth in the works ; it ’ s just that most growth stories are not as clear and compelling as they were in the days when gaming was spreading rapidly across the country and , until just about now , when online sports betting and iCasino were the rage .
The emphasis now is on how these more mature companies can combine selective growth with improving management of assets to move stock prices upward . Much of their improvement has been done in recent years through cost cutting , paying down debt , buying back stock and initiating dividends .
For investors , those improvements haven ’ t been enough . Gamers largely underperformed the stock market last year , in part carried along by the malaise in small caps , generally , with nervousness over the economy and what a recession would mean for the earnings of consumer-discretionary companies , and the aforementioned dearth of clear and compelling growth stories .
Given this environment , accompanied by a continuing nervousness over the economy regardless of the less hawkish-talking Fed and the bull run in big caps , especially of the tech variety , investors will be expecting casino operators to offer more proof of growth ahead .
Put most simply and bluntly , 2024 will be a time to put up .
With that as preface , here are some thoughts on what to look for in earnings reports and executives ’ commentary on conference calls :
• The Big Four . Wynn , MGM Resorts and Las Vegas Sands all have benefited from the big comeback in Macau , and for Wynn , MGM and Caesars , from a banner fourth quarter in Las Vegas . We ’ ll be looking for signs that those im- provements are not just sustainable , but are platforms to build upon in 2024 . For MGM and Caesars , we ’ ll also be interested in hard numbers on growing online profitability .
• Regionals . Brick-and-mortar gaming revenues throughout the country have been choppy . It will be important for companies to show they can grow overall in this environment . This will be especially important for Penn Entertainment , which is subject of considerable skepticism over its online prospects , and for Boyd to show that its disappointing third quarter was a blip and not the start of a trend .
• Turning projects into profits , and a special situation . As mentioned , Red Rock Resorts and Churchill Downs have the clearest and most compelling growth strategies and pipelines . The trick will be to demonstrate their convertibility into growing profits . These may be two companies whose potential remains underappreciated .
Brick-and-mortar gaming revenues throughout the country have been choppy . It will be important for companies to show they can grow overall in this environment .
Meanwhile , there is Bally . Historically , Bally is a middling regional operator but now it has two potentially transformational projects — development of a Chicago casino and whatever is built in Las Vegas in place of the Tropicana and adjacent to the coming A ’ s baseball stadium .
It ’ s too early to tell how either or both will play out , but we ’ ll be looking for evidence that management has credible plans .
Finally , there is Full House Resorts , which , so far , risks being the little engine that couldn ’ t . Full House has two potentially transformational new casinos in Waukegan outside Chicago and in introducing a relatively large , luxury property to Cripple Creek , Colorado .
Waukegan opened with less of a bang than hoped and has been stuck under $ 8 million a month in gaming revenue , a number that doesn ’ t inspire confidence that the yet-to-be-built permanent casino will provide a big return . Cripple Creek recently opened with snafus that caused hotel room cancellations on what should have been a celebratory New Year ’ s weekend , and with its most attractive amenities still to open .
If Full House delivers on much of the promise of those projects , the stock is a multi-bagger — but it has to execute to achieve that .
• Now what ? Monarch Casino and Golden Entertainment are two small operators that are all dressed up with no apparent place to go . The good news is that they have built themselves into generators of considerable excess cash that is piling up on pristine balance sheets . That gives them what analysts euphemistically call optionality .
We ’ ll be looking for plans — specific growth strategies , cash cow-like returns to shareholders or , to use another investor euphemism , strategic alternatives . Absent some combination of those , Monarch ’ s and Golden ’ s stocks may be welldressed plodders .
• Don ’ t tell me . Show me . This applies to all of the online sports betting and iCasino operators , whether divisions of companies such as Penn Entertainment , pure plays like Rush Street Interactive and DraftKings , or attendants to the industry such as affiliates and data providers .
This may be less a 2024 than a 2022 and 2023 story , as the stock prices of these companies have fallen from their giddy highs to disillusioned lows . But it will still be true that for any of them to advance significantly this year , they will have to put up more numbers than promises .
Frank Fantini is principal at Fantini Advisors , investors and consultants with a focus on gaming .
12 Global Gaming Business FEBRUARY 2024