It was a great sign for investors in Station Casinos when the company accelerated its 2Q24 earnings report to yesterday. Station execs were clearly bursting with good news. As Truist Securities analyst Barry Jonas summarized, Durango Resort continues to be boffo, with same-store results at most other Station properties stable and cannibalization of former flagship Red Rock Resort no worse than expected. A hastened Phase II enlargement of Durango was formally announced this afternoon but it was the worst-kept secret in Las Vegas for quite some time.
Even so, Jonas took an admittedly conservative tack on Station stock, rating it “Hold” and lowering his price target to $63/share from $64. Still, Station beat Wall Street estimates, delivering $202 million in cash flow (not the expected $196). Net revenue of $486 million was also better than the forecast by 2%. Those were the second-highest marks in those categories in Station history.
Advances were made in casino revenue (+19%), hotel rates (+12%) and F&B (+18%), resulting in “record revenue and profitability” (Jonas). Visitation to Durango continues to grow almost exponentially and it has added 55,000 names to the Station database. (Wow.) Needless to say, projected ROI is gangbusters and practically unheard-of in contemporary Vegas. Only one Jonas remark struck us as odd: “Mgmt remains committed to backfilling any lost demand with new area developments over time.” If you’re experiencing a bit of cannibalization, how is adding more casinos going to help?
Phase II at Durango will entail 25,000 more square feet of casino (plus 120 high-limit slots and 110 mass-market ones), as well as a 2,000-space parking garage. After that, next up is Inspirada. Early renderings left us un-Inspiraded but perhaps the design has evolved. We sincerely hope so. Also, the long-in-abeyance North Fork Rancheria casino in California is on the move: 2,478 slots and 42 tables, run by Station on an incentive-laden basis.
Deutsche Bank stock boffin Carlo Santarelli was somewhat more exuberant about Station, giving it a “Buy” rating and a $65/share price goal. Still, he deemed the much-touted results no better than “solid … Bluntly, there was very little of note in the 2Q24 results, with Durango performance, net of cannibalization at Red Rock, driving the Y/Y growth, and the balance of the portfolio improving in its Y/Y performance.” He didn’t see the numbers as a harbinger of Boyd Gaming‘s coeval performance, especially due to what he called the triangulation of locals-casino marketing.
Santarelli pegged the Durango ROI at 15%, reporting that Station executives reported the market to be stable, implying that the growth from Durango was organic. Palace Station was name-checked for poorish results, due to low hold at the sports book and disrupted business thanks to road construction, the bane of Palace’s existence. Sunset Station was also adversely affected, in this case by renovations (depicted above), but that was to have been expected.
A very similar view of Station was expressed by J.P. Morgan analyst Joseph Greff, who added that the company was seeing stronger high-end play. He quoted management as calling “high performance in its VIP section, which is attributed to (its) intentional shift towards a higher network customer, and also in (its) regional and national segments, as well.” Even unrated play was solid, up 11%. He anticipated that the same trends would be “generally positive” for Boyd, “though BYD is unlikely to grow at the same magnitude given lower-end consumer exposure and lack of additional capacity.” Greff put an “Overweight” rating on the stock, rocketing his price target for RRR up to $69/share (!) from $62, thanks in part to Station’s enormous bank of undeveloped land, something nobody else in the market has.
Nobody’s price target was as high as that of Jefferies Equity analyst David Katz: $71/share, with a “Buy” rating. Aggressive! He wrote, “continued solid execution and a robust growth trajectory support our bullish thesis.” He predicted over $1.9 billion of revenue in the 2024 fiscal year and $818 million in cash flow. Those numbers are anticipated to go higher still in 2024, much higher. Katz liked Station for “our expectation that the risk-adjusted growth in the business should continue, the owned real estate assets, and the prospects for further developments in the Las Vegas Locals market.” Which about says it all.
We’re on the road this week, en route to the Shore Leave convention in Pennsylvania. Our travels took us through Virginia and to a legacy of the ongoing tumult regarding black market slots. We pulled into a gas station/convenience hstore that had eight of the devices. They’d been powered off but showed no signs of going anywhere, despite being currently illegal in the Cavalier State. Clearly, the owner of this slot route is living in hope that the Virginia Lege gets past Gov. Glenn Youngkin (R) and votes the devices back into law. The prospect of taxation (plus regulation) that would come with such legality is clearly mouth-watering to lawmakers. In the meantime, the oversized, monolith-like devices stand as mute testament to ineradicable ubiquity of “skill” games … a slot by any other name.
We also passed through bucolic, historic Henrico County. This is currently the site of a major gambling kerfuffle. Churchill Downs wants to open a 175-slot casino in a semi-vacant shopping mall. The idea is playing to mixed reviews from residents and not at all with legislators, including the inevitable Rep. Lashrecse Aird (D, below). We’re not members of the Aird fan club but she’s on the side of the angels this time. Seems that Churchill Downs saw a restriction on zoning changes coming into effect on July 1 and snuck its slot parlor through at the eleventh hour. Which has solons in a dander.
GIven that the greater Richmond area has already been showered with 1,300 slots, why does Churchill Downs need 175 more? And why Henrico County? It’s a quiet part of the state, although it wasn’t always such. Union and Confederate forces clashed bloodily there in 1862 and again in 1864-5. If you want to commune movingly with the spirits of the fallen, there are few better places in the United States. But Bill Carstanjen and his company see only fannypackers and jackpots, not blue and gray. CHDN having snuck this through between the lines (perhaps as revenge on Richmond for rejecting its casino-resort project las November) gets to have the last laugh. Lawmakers hope the company will have the taste to rethink its plan … but don’t count on it.
There are many places that are wonderfully well suited to casinos. We can nominate some. Henrico County is not one of them.