Gaming Analyst Cuts Price Target For Caesars Entertainment, Red Rock Resorts & Sportradar Ahead Of Q2 Earnings

It's been a volatile year for casino and online gaming stocks so far. On Monday, one Wall Street analyst adjusted his expectations for gaming stocks ahead of second-quarter earnings season.

The Analyst: Bank of America analyst Shaun Kelley made the following adjustments to gaming stock price targets:

• Caesars Entertainment Inc CZR, reiterated Buy rating, cut price target from $90 to $75.
• VICI Properties Inc VICI, reiterated Buy rating, raised price target from $32 to $34.
• Sportradar Group AG SRAD, reiterated Neutral rating, cut price target from $15 to $10.
• Red Rock Resorts Inc RRR, reiterated Underperform rating, cut price target from $47 to $38.

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The Thesis: In the Q2 earnings preview note, Kelley said he expects strong results for companies exposed to the Las Vegas Strip, given strong April trends in both gross gaming revenue and Revenue per available room (RevPAR). At the same time, regional casino operators will be facing their most difficult year-over-year comparisons of the year in the quarter. Kelley is projecting regional casino property EBITDAR will be down about 8.8% and margins will decline about 4.55% compared to a year ago.

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"Commentary on consumer spending will be the most critical part of earnings, as investors weigh exit rates, recession concerns, inflation impacts, and flagging confidence," Kelley said.

The other two trends in gaming that investors will be watching will be weakness in the Macau, China, market due to COVID-19 shutdowns and the volatile U.S. iGaming and online sports betting (OSB) market. Kelley said both OSB and iGaming trends were strong in April and May, but OSB trends weakened in June.

Benzinga's Take: U.S. casino stocks are certainly at risk if the economy falls into a recession, so it's not surprising to see U.S. casino stocks underperforming year-to-date in 2022. However, much of the negative sentiment in Las Vegas Sands Corp. LVS and Wynn Resorts, Limited WYNN is tied to Macau, so there could be a potential for relief rallies in several of the rest of the U.S. regional casino stocks that don't have exposure to China.