Regional Casino Q3 Earnings Could Impress, Analyst Has Penn Concerns

Third-quarter earnings time of year starts inwards earnest next week, and downtrodden shares of regional cassino operators could commit investors something to utter about. Gross gaming revenue (GGR) trends inwards the mathematical group remain sturdy.

That, despite expectations to the contrary, prompted analysts earlier this year to number downward GGR revisions for the 2nd half on a slew of regional casino operators.

In a line to clients, Philip Milton Roth Capital psychoanalyst Edward VI Engel says recent management commentary suggests demand trends were becalm inward the July through Sept period. That supports the whimsy that third- and fourth-quarter GGR should surprisal to the upside, pavement the way of life for earnings before interest, taxes, depreciation, and amortisation (EBITDA) beats.

Regional GGR grew 1.9% YoY in Aug, with 3Q22 GGR pacing +0.5% YoY. Aug’s YoY growing snapped June/July’s streak of YoY declines. Aug 2022 had ane to a lesser extent weekend daylight than cobbler's last year, although calendar shifts are electroneutral for Sept. We mold Sept GGR +1% YoY, which would lay 3Q maturation in-line with 2Q’s +0.5%,” noted Engel.

With a flood of gambling casino companion earnings arriving inwards the coming weeks, some on Wall Street are constructive on the group, including Las Vegas-centric and regional operators. They contend that some of these stocks experience been unjustly repudiated this year.

Cautious on Penn

As the largest regional cassino operator, Penn Entertainment (NASDAQ: PENN) can be seen as a bellwether for the group. But Engel urges caveat on the name, noting in that respect are “red flags” to consider.

“Heading into 2022, investors were cautious of new contention cannibalizing PENN’s marketplace apportion inward certain markets. 3Q demonstrated this, with meaningful GGR declines inwards Pennsylvania and Illinois,” said the analyst. “We’re also interested with Penn Interactive’s 3Q EBITDA losses, as William Penn invests inward ramping certain new markets (Louisiana, Kansas, Ontario).”

The analyst also noted that fifty-fifty when ignoring the cash William Penn is outlay on what appears to live an ill-fated stake on California’s Proposition 27, an uptick in losses could amplify investors’ concerns regarding Penn’s ability to turn over profits in its iGaming/sports wagering unit.

In more encouraging news, Penn’s promotional spending has long been rational comparative to industry norms, and that precedent remains inward put today. The keep company is also making investments inward of import regions to bolster up marketplace share.

Regional Casino Names to Consider

While Engel isn’t bullish on Penn, he highlighted some opportunities among regional gambling casino stocks, including Golden Entertainment (NASDAQ: GDEN). The accompany is inward the process of selling the Rocky Gap Casino Resort inward Flinstone, Md., which testament wee-wee it an exclusively Nevada operator.

“We similar the set-up for GDEN into 3Q results, where Southern Sagebrush State continues to be i of the best-performing markets post-pandemic, with July/Aug GGR +25% vs 2019. As citywide events break up upwardly this light and contract mid-week hotel rates, we anticipate GDEN’s Strat bookings to carry on regaining lost way nights since COVID,” added the analyst.

Regarding Full House Resorts (NASDAQ: FLL), he says that story revolves mostly around young venue openings inward Colorado River and Illinois. On Century Casinos (NASDAQ: CNTY), Engel notes that the operator’s third-quarter results could follow pinched by currency headwinds due to its exposure to Canada and Poland.

He has “buy” ratings on Century, Full House, and Golden Entertainment patch leveling William Penn “neutral.”