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Hurry Up and Wait

Dips in operator stocks can be an investment opportunity

Hurry Up and Wait

There’s an old army expression that equity investors are learning to understand: Hurry up and wait.

The hurry up has been the anticipation of earnings every quarter. We eagerly await the numbers. The wait has been that nothing changed, so wait for yet another quarter.

In gaming, it’s become almost a mantra. We repeat: Customers are resilient, though low-value players are starting to reduce spending. The hard-won margin improvements achieved to survive Covid are being sustained into a new normal, though inflation threatens some erosion.

The Las Vegas Strip continues healthy, Macau is bounding back, the Las Vegas locals market grows steadily with the population, and other regional markets are softening. Oh, and let’s add that we’re all waiting on the economic recession that has been promised again and again (the latest worries being student loan repayments diverting consumer spending).

Eventually, the recession will come, though whether that’s next week or next year or later is anyone’s guess, with the emphasis on guess.

Here is what we do know. The stocks of casino operators have sold off. Take any favorite company. Want to enjoy the benefits of the Las Vegas Strip’s robustness and Macau rebound? Well, Wynn Resorts is 24 percent off its 52-week highs and MGM is down 32 percent.

Love that growing Las Vegas locals market? Try Red Rock Resorts down 22 percent despite the pending opening of a major new property, or Golden Entertainment down 30 percent.

Like a regional company that steadily grows profits and has a pipeline of sure-fire growth projects like Churchill Downs? It’s 26 percent below its high.

How about a company that enjoys both a big Las Vegas Strip and diversified regional presence along with a digital gaming kicker? That would be Caesars. It’s down 28 percent.

How about a regional company in two growing markets that produces almost guaranteed growth, has a balance sheet so clean you can eat off of it and is a synonym for free cash flow? Try Monarch Casino—down 28 percent.

Or how about a small company with two major growth projects almost assured to more than double EBITDA? Try Full House Resorts, down a punishing 60 percent.

Heck, even the rock-solid raise-dividends-higher-and-higher REITs aren’t immune. VICI is off 19 percent and Gaming & Leisure Properties 18 percent. For the record, VICI’s dividend yields 5.9 percent and Gaming & Leisure’s 6.5 percent. Take that, faint of heart who are fleeing to bonds.

We could go on to the rest of the casino operators, but the story is the same: stock prices are down even though, again for the zillionth time, business is resilient and/or rebounding. It’s worth noting that this gaming bear market is occurring even as companies dramatically improve balance sheets, initiate or increase dividends and, in several cases, have growth projects baked in.

It’s also worth noting that these are declines from their 52-week highs, not from the higher levels that can be achieved when full value eventually is given for their cash flows.

So, barring a deep recession that knocks down earnings enough to justify today’s valuations, we might be in a period where casino stocks are bargains for the long-term investors. So, hurry up and buy now, then wait for your returns.

Yose is Back

It is interesting to see that Light & Wonder has retained Mark Yoseloff as a table games consultant.

One of the mergers in the series of them that created Light & Wonder was the acquisition of Shuffle Master, the company Yoseloff ran and built into a $1 billion market cap table games powerhouse. He possesses one of the most brilliant minds in the gaming industry, and it’s good to see him back in a formal role at a game company.

What Does BMM Mean?

Talking about familiar folks showing up in new places. BMM Innovation Group has just hired Laura Olson-Reyes to head its communications.

It may be difficult to believe now, but high-flying Aristocrat was once in dire straits in the Americas. The company brought in Gavin Isaacs to right the ship. His management team included some young stars like Kent Young, who headed sales, and Laura in communications. Needless to say, they and their successors didn’t just right the ship, they built today’s leading games company.

Laura went off to other stops. One of my favorite stories was when Laura headed communications at Bally Technologies (now part of Light & Wonder). G2E then had a communications industry luncheon in which various awards were presented. In this instance, award after award was pesented to Bally. It was a clean sweep. Not one other company got an award.

When each Bally award was announced, a different member of Laura’s team went up to receive it. She never got on stage. Winning every single award said a lot about Laura’s leadership. Allowing her team to get all of the credit said a lot more.

So, now Laura is at Martin Storm’s BMM. Oh, and what does BMM stand for? In this case it means hiring Laura is your Best Move, Martin.

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