The reopening of casinos on the Las Vegas Strip has been mixed at best, with string initial demand driving reopenings but room rates significantly down from a year ago.
Regional casinos around the U.S. have been reopening as well, and the latest number suggests regional operators are bouncing back better than their Vegas counterparts.
What Happened? More than 70% of all regional U.S. casinos have now reopened, and Bank of America analyst Shaun Kelley said Thursday the numbers are encouraging.
“State data supports the pent-up demand narrative with certain reported figures reaching all-time highs in Louisiana, Kansas and Arkansas,” Kelley wrote in a note.
Kelley said those trends are good news for U.S. regional casino operators, such as Penn National Gaming, Inc PENN, Eldorado Resorts Inc ERI, Boyd Gaming Corporation BYD and Caesars Entertainment Corporation CZR.
Since regional casinos have reopened, win/day is up 6% from previous highs in Kansas, win/slot/day is 9% above previous highs in Arkansas and win/admission is up 51% from previous highs in Louisiana.
Why It’s Important: Reopening casinos was a big first step in a return to normalcy for casino operators, but consumer appetite for gambling was a big unknown. While Las Vegas operators are taking a hit due to its reliance on out-of-town travelers and hotel guests, regional casinos appear to be enjoying pent-up demand from gamblers.
In addition, Kelley said staff reductions, marketing cuts and cutbacks in low-margin amenities such as buffets have helped boost margins for reopened casinos.
Looking ahead, Kelley is projecting U.S. regional casino revenues in 2021 will be down between 5% and 12% from 2019 levels.
Kelley also said iGaming gross gaming revenue in New Jersey and Pennsylvania in May was up 7% and 30% month-over-month, respectively.
Kelley said the combination of pent-up regional demand, higher margins and iGaming growth give Penn National, Boyd and Eldorado the most encouraging fundamental outlook within the casino space.
Benzinga’s Take: Both Vegas and regional casinos have cleared the first hurdle in the road to recovery by opening the casino doors up once again. However, Vegas’ reliance on air travel, conferences and other large events suggest it’s path back may be longer and much more difficult.
For investors looking to play the regional casino recovery, Bank of America has the following ratings and price targets for major regional casino operators:
- Penn National, Buy rating and $45 target.
- Boyd Gaming, Buy rating and $25 target.
- Eldorado, Neutral rating and $45 target.
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