{"id":219802,"date":"2022-07-05T14:54:21","date_gmt":"2022-07-05T19:54:21","guid":{"rendered":"https:\/\/www.casino.org\/news\/?p=219802"},"modified":"2022-07-06T14:51:00","modified_gmt":"2022-07-06T19:51:00","slug":"cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks","status":"publish","type":"post","link":"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/","title":{"rendered":"Early Warning Signs Emerging in Gaming Space, Says Analyst"},"content":{"rendered":"

Gaming stocks languished alongside the broader market in the first half of 2022, despite robust demand and strong margin growth.<\/p>\n

\"gaming
Scenes outside New York New York on the Las Vegas Strip. Signs of weakness are emerging for gaming stocks, says an analyst. (Image: Wall Street Journal<\/em>)<\/figcaption><\/figure>\n

Now, it appears the toll of an inhospitable macroeconomic environment — one rooted in rising interest rates, sagging consumer confidence, and persistent inflation<\/a> — is weighing on the casino industry. With second-quarter earnings season commencing this month, operators\u2019 commentary could reflect not only softening demand in the latter stages of May and June but muted expectations for the current quarter as well.<\/p>\n

Early cracks are starting to form in broader gaming demand. While 2Q’s year-over-year gross gaming revenue (GGR) declines are tracking better than initially feared (down just ~0-1% YoY), there were signs of demand softening over the final week of May and carrying into June,\u201d writes Roth Capital analyst Edward Engel in a note to clients today.<\/p><\/blockquote>\n

He adds that while June data points indicate waning demand last month, strength in April and May should offset that weakness, enabling casino operators to likely meet second-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) estimates.<\/p>\n

Broad-Based Pockets of Weakness<\/h2>\n

With consumer discretionary — the home of gaming stocks — ranking as one of 2022\u2019s worst-performing sectors, it\u2019s accurate to say that casino equity weakness is broad-based.<\/p>\n

\n

In other words, when one member of the gaming equity group coughs, the rest catch a cold, and that thesis is on display this year with disappointing share price performances seen across land-based casino companies, sportsbook operators<\/a> and technology providers, among others.<\/p>\n<\/div>\n

While overall GGR remains solid, there\u2019s evidence that high inflation and declining consumer confidence are weighing on certain demographics and select casino markets.<\/p>\n

\u201cWhile overall GGR remains healthy, certain markets and segments are starting to soften. Investors have been concerned with demand from lower demographics. But distributed gaming \u2018route\u2019 GGR and hyper-local casinos remained strong in May,\u201d adds Engel. \u201cAlternatively, non-local drive-to markets, such as Laughlin and Lake Charles, appeared more vulnerable to rising inflation\/gas prices. In Las Vegas, industry commentary suggests softening trends for \u2018value\u2019 casinos, such as off-strip and downtown properties.\u201d<\/p>\n

Strong Free Cash Flow Expectations for Gaming Stocks<\/h2>\n

One tailwind for gaming stocks is that several companies in the industry are generating prodigious amounts of free cash flow (FCF),<\/a> which is a compelling trait in the current economic climate. As Engel points out, several gaming stocks are attractive valuation and FCF-generating capabilities.<\/p>\n

On an EV\/EBITDA basis, stocks are nearly ~2\u03c3 below 10yr averages, and much cheaper on an FCF basis alongside lower leverage and better FCF conversion than prior years. We broadly reduce our target prices to reflect slightly lower forecasts and trough multiples, but these still offer considerable upside potential,\u201d says the Roth Capital analyst.<\/p><\/blockquote>\n

He says the most alluring FCF profiles in his coverage universe are Century Casinos (NASDAQ:CNTY), Full House Resorts (NASDAQ:FLL), Golden Entertainment (NASDAQ:GDEN) and Penn National Gaming (NASDAQ:PENN)<\/a>.<\/p>\n

The analyst has a \u201cneutral\u201d rating on Penn and \u201cbuy\u201d ratings on the other three names.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Gaming stocks languished alongside the broader market in the first half of 2022, despite robust demand and strong margin growth. Now, it appears the toll of an inhospitable macroeconomic environment — one rooted in rising interest rates, sagging consumer confidence, and persistent inflation — is weighing on the casino industry. With second-quarter earnings season commencing […]<\/p>\n","protected":false},"author":46,"featured_media":219804,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[62,10],"tags":[],"acf":[],"yoast_head":"\nCracks Are Appearing For Casino Industry, Could Pressure Gaming Stocks<\/title>\n<meta name=\"description\" content=\"Gaming stocks could be pinched as inflation weighs on industry.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Cracks Are Appearing For Casino Industry, Could Pressure Gaming Stocks\" \/>\n<meta property=\"og:description\" content=\"Gaming stocks could be pinched as inflation weighs on industry.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/\" \/>\n<meta property=\"og:site_name\" content=\"Casino.org\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Casino.OrgNews\" \/>\n<meta property=\"article:published_time\" content=\"2022-07-05T19:54:21+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-07-06T19:51:00+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.casino.org\/news\/wp-content\/uploads\/2022\/07\/strip2.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"640\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Todd Shriber\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@etfgodfather\" \/>\n<meta name=\"twitter:site\" content=\"@Casino_Org\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Todd Shriber\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/\",\"url\":\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/\",\"name\":\"Cracks Are Appearing For Casino Industry, Could Pressure Gaming Stocks\",\"isPartOf\":{\"@id\":\"https:\/\/www.casino.org\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.casino.org\/news\/wp-content\/uploads\/2022\/07\/strip2.jpg\",\"datePublished\":\"2022-07-05T19:54:21+00:00\",\"dateModified\":\"2022-07-06T19:51:00+00:00\",\"author\":{\"@id\":\"https:\/\/www.casino.org\/news\/#\/schema\/person\/f4cecf70a5032bc4e60eb73fc86d4a85\"},\"description\":\"Gaming stocks could be pinched as inflation weighs on industry.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.casino.org\/news\/cracks-are-appearing-for-casino-industry-could-pressure-gaming-stocks\/#primaryimage\",\"url\":\"https:\/\/www.casino.org\/news\/wp-content\/uploads\/2022\/07\/strip2.jpg\",\"contentUrl\":\"https:\/\/www.casino.org\/news\/wp-content\/uploads\/2022\/07\/strip2.jpg\",\"width\":1280,\"height\":640,\"caption\":\"Scenes from the Las Vegas Strip. 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