It was a good day yesterday for Boyd Gaming as it trotted out its 4Q22 numbers. Cash flow healthily overshot Wall Street expectations and was powered by, among other things, better-than-2019 visitation by that Boyd mainstay, players from Hawaii. Wrote J.P. Morgan analyst Joseph Greff, “The growth in Locals was driven by destination business (tourists and out-of-towners) and non-gaming operations (we note that these trends have to be very positive for Red Rock Resorts who has yet to report) and continued strength in play from its core customers.” Despite softness in Louisiana and Mississippi, Boyd improved its numbers in the Midwest and South, helped along by strength in the online segment and by performance-based management fees from successful, new Sky River Casino near Sacramento.
Like other regional operators, Boyd took a hard hit from December weather but did a bit of fan-dancing about 1Q23, hinting at encouraging numbers from January. Given those growth segments noted above, Greff backed off his 10% revenue-decline projection for Boyd this year. He also applauded Boyd’s ownership of its real estate, as well as its “relatively better demand environment” in Las Vegas. The company appears to have taken the costs of launching sports betting in Kansas and absorbing Pala Interactive in stride. Boyd bought back $107 million worth of stock and committed to repurchasing at least $100 million per quarter.
“Better than expected” was Deutsche Bank analyst Carlo Santarelli’s take, in which he found the Boyd data reassuring after worrisome regional ones teased by Penn Entertainment and Caesars Entertainment. “Though the MW&S region raises some questions, we think the continued strength in Las Vegas, and the good enough results in the MW&S segment, even after adjusting for the favorable one-timer, should carry trading in the near term,” Santarelli wrote, upgrading his rating to ‘Buy.’
“Keep in mind,” added Credit Suisse analyst Ben Chaiken, “December broadly was a poor hold month in both Downtown and Locals, making BYD’s reported results particularly impressive” in Sin City. He was, however, skeptical of the report of 1Q23 improvement regionally, saying it needs to be proven out. Truist Securities‘ Barry Jonas was more avid, reporting that Boyd had hit record numbers in Vegas locals revenue and cash flow “with growth driven by destination business, non-gaming and continued core customer strength offsetting some decline in retail play,” which could portend well for Station Casinos too. While he stood pat on his stock rating, Jonas did stake his liking for a management team that “continues to prioritize shareholder returns” and a company that performs like an OpCo even though it owns and operates most of its real estate. He’s about to conduct a swing through Boyd’s Dixie casinos, so expect a fuller report at that time.
Penn Entertainment experienced some ‘analyst remorse’ after a pretty clement reaction to its 4Q22 earnings miss. While Santarelli moved his price target up from $31/share to $35, he confessed he was “struggling to identify the bull case.” Thanks in part to the subtraction of Tropicana Las Vegas from the portfolio, Penn leadership forecast a 2023 shrinkage in cash flow of as much as 5%. While Penn’s digital segment is expected to bring a $25 million ROI, “Capital expenditures, cash taxes, and cash interest are higher than previously anticipated,” while share repurchases will likely decelerate. And this: “There was little in the way of commentary around the retention of the key personalities or structure of the relationship post the closing of the Barstool transaction on February 17, 2023.” In other words, what’s happening with Dave Portnoy?
As for the December onslaught by Mother Nature, “we believe it is likely that the weather impact was less than the magnitude of the [revenue] miss, relative to Consensus.” Santarelli blamed either a serious constriction of non-gambling spending or renewed promotional wars. “The favorable margin impact that we anticipated from the sale of Tropicana Las Vegas in the West segment was not as meaningful as previously contemplated.” (It was always overhyped.) Santarelli also remains skeptical about Penn’s interactive division, asserting that—barring an expansion of market share (which is probably going to be only incremental, in our view)—it remains “sub-scale and unable to generate material contributions” to cash flow, just “filling holes” in the brick-and-mortar business. There was more in this vein but we’ll let it go.
There was good news. Construction of a second tower at M Resort is still ‘on,’ rumors of sale talks with MGM Resorts International to the contrary. Internet casino revenues are up a booming 52%, helped by the addition of Ontario, Penn’s largest such market. Ohio‘s launch of OSB went well for Barstool Sports, with a record number of initial depositors despite a minimal promotional spend. Still, no fewer than seven Penn casinos—Ameristar East Chicago, Ameristar Council Bluffs, Hollywood Joliet, Hollywood Aurora, Hollywood Grantville, Hollywood Charles Town and L’Auberge du Lac (above)—will be staring new competition in the face over the next two years.
Chaiken pointed out that Penn had eked out $5 million in positive ROI from i-gaming last quarter but headlined his report with “low expectations.” He allowed, “The market can debate the sustainability of Jan (e.g., strength driven by catch up from weaker Nov/Dec) but it’s not a bad data point,” adding that there’s no sign of a macroeconomic deceleration. I-gaming and sports betting should be a break-even proposition through August, a losing one for most of NFL season, with gains being stashed in the fourth quarter of 2023. (Not that breaking even in OSB is to be sneezed at.)
Penn execs think streamlining their existing tech with Barstool’s will bring the kind of breakout performance seen in Canada. “We are more skeptical however,” wrote Chaiken, “as we think the Score brand in Canada simply resonates more than Barstool does in the US. We are surprised PENN has not used brands outside of Barstool, especially for their core iGaming customer. Utilizing Penn Entertainment or Hollywood seems like an easy incremental benefit.”
The earnings call failed to budge Greff’s rating (Neutral) and price target of $39/share, even though he raised revenue and cash-flow targets based on “(hopefully) conservative views on how the regional gaming consumer will spend in the 2H23 (we’re now modeling down 6% y/y in the 2H23).” He added that “Thus far, regional gaming performance has been consistent with relatively strong trends from the last week of December” and that interactive returns on investment should continue to improve, hitting $109 million next year. His outlook was the most upbeat (a relative compliment), as he found Penn’s shortfalls—which sparked a 4% decline in stock price—”explainable,” even excusable.
We’re almost at the Super Bowl and November sports betting revenues from Arizona are just now trickling in. Operators grossed $55 million (a 9% improvement from 2021) on handle of $616 million. Promotional outlays consumed $16 million of the gross. 17 providers vied for customers’ money, with the lion’s share (94%) going to the Big Four. The unquestioned revenue leader was FanDuel with $24.5 million. Further back were DraftKings ($11.5 million), BetMGM ($10 million) and Caesars Sportsbook ($5 million).
For anyone who puzzles at the title of this column, here’s a crash course. Stiffs would include Maria Shriver and the Hough Twins, while Gordon Ramsay and Dame Emma Thompson are most definitely Georges.
Jottings: Station Casinos has set Feb. 10 for the opening of Wildfire Fremont. As you can see from the photo, it’s a looooong way from Downtown but has the advantage of being in an area that is steadily gentrifying, as the surrounding development indicates. Kudos to Station for realizing that there was not a need for a full-scale casino at the northern terminus of the Boulder Strip. No table games will be on offer, unless you count electronic ones, but there will be 200 slots and a Tacos El Pastor. Viva! … If a Public Opinion Strategies poll is reliable, Georgia has enough popular votes to pass a constitutional amendment legalizing casinos, plus 85% of those surveyed want it put directly to a popular vote, bypassing the Lege. 60% of GOP voters were tractable, a good sign … A kick in the pants to Churchill Downs for its dunderheaded decision to dethrone the Queen of Terre Haute. The in-progress, $290 million gambling resort will now be known simply (and boringly) as Terre Haute Casino Resort. CHDN’s excuse is “to streamline branding efforts.” Boo! … There’s another New York City casino entrant, billionaire Stefan Soloviev. His rather daffy Freedom Plaza proposal for a $3 billion field would combine a soccer pitch, Ferris wheel, museum, retail, two condo towers and, oh yes, a casino. File this under “long shots” …
Hard Rock International is wasting no time on its guitar hotel addition to The Mirage. That vibration you’ve been feeling along the Las Vegas Strip is President Joe Lupo‘s engineers probing for the firmest spot upon which to base the tower. Hard Rock is also staffing up, adding 300 positions. More of that, please.
