Published on: September 22, 2022, 02:17 am.
Last update: September 22, 2022, 02:17.
Despite all the talk of high inflation and rising interest rates potentially spurring economic contraction, demand trends on the Las Vegas Strip are far from pricing in a recession.
In a note to clients today, Macquarie analyst Chad Beynon points out that Internet searches for Las Vegas travel rose 7% in August, building on gains of 5% in July and 3% in June. There are signs that the momentum is extending this month, providing support for the research firm’s bullish outlook on gross gaming revenue (GGR).
Strong August and September results give us confidence in our GGR forecasts of $631m (+1% YoY) in August, $2.1bn (+1% YoY) in 3Q22 and $8.2bn for 2022 (+ 15% YoY, +24% vs. 2019),” Beynon wrote.
Further supporting the case for Strip-oriented actions, Beynon acknowledges that while Las Vegas visitation remains about 9 percent below 2019 levels, spending per visit is about 40% ahead of levels seen in the last year before the onset of the coronavirus pandemic.
Bullish on Caesars, MGM, VICI
As for specific stocks, Beynon said Macquarie’s top picks in Las Vegas are Caesars Entertainment (NASDAQ:CZR ), MGM Resorts International (NYSE: MGM ) and VICI Properties (NYSE:VICI ).
MGM and Caesars are the two largest operators on the Strip, while VICI is the largest owner in the US casino hub. The Bellagio operator gets about 47 percent of its revenue from the Strip, while Caesars gets 45 percent of its sales from the area, according to Beynon.
thesis important for all three names, especially MGM and Caesars, are signs that convention business is rebounding. Beynon noted a long-term rebound in group and meeting business is a catalyst for Strip operators.
This coincides with comments made earlier this week by MGM CFO Jonathan Halkyard at Deutsche Bank 30th Annual Leveraged Finance Conference. He said there was “real enthusiasm” for a return to face-to-face conventions and that was reflected in the carrier’s bookings, which extend to 2023.
Other Demand Catalysts in Las Vegas
As noted above, Strip visitation levels remain below those seen before the COVID-19 crisis, but a number of upcoming landmark events in Sin City could change that for the better.
“Longer term, we see the return of conventions and a strong sports/event calendar over the next two years (eg NCAA Men’s Division I Basketball Tournament games, Formula 1, Las Vegas Raiders and Golden Knights and Super Bowl 2024, among others) to provide some level of support for Strip GGR and non-gaming revenue,” Beynon added.
Specific to the November 2023 F1 race, which could be an epic moneymaker for Strip operators and the city in general. As just one example, MGM is believed to be building ticket and room packages for the race that could go for as much as $100,000.