Boston buoys Wynn, Penn leans on Barstool

Wynn Resorts was one of three biggies to report 1Q20 results late last week and the Las Vegas Strip was the least of its problems. Wynn Las Vegas and Encore had net revenue of $324 million, down 19% from last year. And there was $140 million of ‘free money’ in the form of Encore Boston Harbor, which wasn’t open in 1Q19. Macao was a different story. Wynn Macau‘s $229.5 million was a 56% dive, while Wynn Palace plunged 64% to $259.5 million. Occupancy in Las Vegas was 80% with an average daily rate of $374. $415 million was wagered at the tables and $665 million in the slots. Win/slot/day was a far-above-average $343. Gross table revenues were $83 million and slot win $47 million.

JP Morgan analyst Joseph Greff ratcheted his WYNN price target down from $98 to $93/share but otherwise defended the company. “We believe WYNN’s asset base in Macau positions it well for VIP and premium mass recovery, one that should be aided by potential easing of travel restrictions to/from Macau … in the coming weeks/months.” He also felt that the market undervalued the Vegas and Boston “high quality asset base. ” He valued the Strip properties 50% higher than MGM Grand and more than triple Mandalay Bay. 15 months of liquidity ($3.4 billion) didn’t hurt either. Greff did warn that Wynn “may flex down its operating expenses, particularly as it relates to labor.” Wynn LV is projected to reopen June 1, with Encore following … a year later. In Massachusetts, Gov. Charlie Baker (R) has announced a four-stage reopening, starting May 18 but it’s pretty clear that Encore Boston Harbor won’t qualify for Stage One, leaving its resumption still up in the air, probably not until July (see below).

* It was a similarly mixed bag for Penn National Gaming. Its largest segment (Northeast) was down only 5.5% to $521 million, while “Other” actually leapt 72% to $17.5 million. In the South, Penn slipped 23.5% to $223 million, while it dipped 20% in the West ($126.5 million) and 16% in the Midwest ($228 million). Greff described these as “results that were not too far off from our thinking.” On the downside, Penn has only nine months’ liquidity. On the upside, it is moving ahead with its Barstool Sports launch, slated for midsummer. The “results reflect record results in January and February, with every segment performing well ahead of guidance, but the acute impact of COVID-19 in March, which required PENN to close all of its 41 properties.”

One positive note is the continued ramp-up of Penn Interactive. In Pennsylvania alone, despite negligible marketing, some 40,000 players enlisted. They’re, on average, younger than the prototypical Penn punter, easing fears of cannibalization. Greff predicts a prolonged comeback for Penn, with cash flow in 2022 at 88% of 2019 levels (“a reasonable assumption”). He prophesied that CEO Jay Snowden would “successfully lead the company through this turbulent period and PENN will emerge even leaner and more efficient over the medium-term.” He added that Snowden “expects to begin opening properties in late-May, with the bulk of properties opening by the end of June (save for a few states).” Cash flow would reach and exceed pre-pandemic levels “as [Penn] improves operating efficiencies and implements broad-based technology improvements across the company (e.g., payment digitization at properties, reduced marketing/direct mail, labor, etc.).”

Expect less direct mail from Penn (bad news for the Postal Service, to the tune of $20 million) and fewer employees (bad news for customer service). The company doesn’t expect its casinos in Illinois, Massachusetts or Maine to open before July 1 but will collect $40 million-$50 million in tax breaks, thanks to the CARES Act. That’ll come in handy as Penn has $731 million in cash but is groaning under $2.9 billion in debt. It consoles itself with thought that its casinos can break even with as little as 25% of 2019 revenue. Average monthly cash burn is $55 million, plus another $28 million in rent. Although Penn’s prognostications don’t leave one brimming with confidence, Greff raised his price target to $21/share.

* Golden Entertainment caught a mid-pandemic break, as it was allowed to reopen its Nevada taverns and pubs May 9 … albeit without the video poker that is its true bread and butter. As for 1Q20, “Leading up to the property closures, trends were strong, with January and February revenue up 8% y/y,” reported JP Morgan analyst Daniel Politzer, who noted that the company’s monthly cash burn is only $7 million. With $302 million cash on hand, Golden could hang tough for 2.5 years (!), should things get that bad, God forbid. Also, when gaming returns, Golden estimates it could break even at 25%-30% of its usual level of play. While too late to impact first-quarter numbers, slot routes in Montana reopened May 4. Early indications were “normalized/pre-close” levels of business. Golden will reopen The Strat as soon as permitted, estimating a break-even point at 35% occupancy.

Politzer stayed “neutral” on Golden, explaining, “we remain cautious on the trajectory of Las Vegas’ recovery with the LV Strip likely having a gradual/phased reopening with airlift-driven tourism to Southern Nevada  … and group-related travel expected to remain under pressure for the near/medium term.” Quarterly revenue was $207 million, down 14% (or par for the course) except in Montana where it was only 1% off the pace. The latter state contributed $17 million in net revenue, led by Nevada ($115 million from casinos and $62 million from slot routes) and followed by Rocky Gap Resort in Maryland ($13 million), down 17%. As long as locals have discretionary dollars with which to play we like Golden’s prospects.

* If Las Vegas Strip casinos reopen—as seems likely—by May 31, they will be facing significantly depressed rooms rates, down 55%. 2019 average rates of $210/night will wither to $95/night, particularly midweek. The only company to come out ahead of the game is Las Vegas Sands, due to the fact that Venelazzo will still be closed. The hardest hit is taken at MGM Resorts International, where midweek rates fall 64% during the week, versus 41% on weekend nights. Best off is Wynncore, benefiting from the laws of supply and demand, with a 25% midweek demand but 43% off on the weekends. Splitting the difference is Caesars Entertainment, -49% midweek and -47% on weekends. Of the four companies, Caesars has provided no guidance as to which of its myriad resorts will be reopening first.

Jottings: Orlando, with its 151 hotels, is elbowing out Las Vegas as the potential site for finishing the NBA season. However, it’s not so simple as that … It took the death of Roy Horn for Siegfried & Roy to ‘come out.’ The duo’s improbable odyssey from rags to riches included stints at the Tropicana Las Vegas, Frontier, MGM Grand and 16 years at The Mirage … An internal memo at Park MGM reportedly says that Aria will not reopen until June 2o21. Employees are allegedly advised to seek other jobs … Indiana sports books had their worst month ever in April, generating $26 million in handle, all online. Ameristar East Chicago/DraftKings was first, with $13.5 million in handle, followed by Blue Chip/FanDuel‘s $10 million … No surprise here: Caesars has canceled its Atlantic City Seven Stars event, scheduled June 11-14. “Event dates and itinerary details are still being finalized and will be communicated at a later date.” Given the uncertainty that continues to hang over when the Boardwalk will reopen, this was the right call.