After more than two months of being completely shut down, casinos on the Las Vegas strip will reopen this week for the first time as part of the city’s “Phase 2” plan to safely return to normal. While reopenings will be a big step in the right direction for casino stock investors, Vegas will still have a steep hill to climb in the near term.

What Happened? On June 4, MGM Resorts International (NYSE:MGM) plans to reopen the Bellagio, MGM Grand and New York-New York casinos, which represent a combined 39% of the company’s total Las Vegas rooms. Caesars Entertainment Corporation (NASDAQ:CZR) also plans to reopen Caesars Palace and the Flamingo, which account for 32% of its total Vegas rooms.

Wynn Resorts, Limited (NASDAQ:WYNN) also plans to open both its Wynn and Encore casinos. Las Vegas Sands Corp. (NYSE:LVS) is reopening the Venetian and the Palazzo.

Why It's Important: The good news for casino stock investors is that other regional casinos that have already reopened have witnessed significant pent-up demand. For example, Mississippi Gulf Coast casinos reopened at half capacity for Memorial Day weekend and reported a 17.3% increase in gross gaming revenue for the weekend compared to last year. Bank of America analyst Shaun Kelley said Tuesday casinos in other regions of the country have demonstrated similar trends.

“Casino openings so far have shown signs of pent-up demand, a trend which we expect to persist in the near-term possibly making our down ~95% GGR estimates for Q2 too conservative,” Kelley wrote in a note.

See Also: Analyst: Why Penn National And Boyd Could Outperform As US Casinos Reopen

What's Next? Unfortunately, Kelley said Vegas may be one of the slowest areas to recover due to its reliance on air travel, cancellations of events and conventions and relatively low pricing power. Kelley estimates air traffic makes up roughly 60% of Vegas’ total visitors, and the latest air traffic data suggests travel remains down about 90% from a year ago.

For investors looking to bet on a Vegas recovery, Bank of America has the following ratings and price targets for the four casino stocks mentioned:

• Las Vegas Sands, Buy rating and $61 target.
• Wynn Resorts, Buy rating and $95 target.
• MGM Resorts, Underperform rating and $15 target.
• Caesars, no rating.

Benzinga’s Take

For the next several months, most investors will be looking past abysmal near-term numbers and hoping that their stocks catch a bid based on expectations that the economy will eventually return to normal.

Las Vegas casino stocks will likely be closely tied to a recovery in air travel, and Bank of America estimates 2021 US airline revenue will be down just 18% from 2019 levels.

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