FANTINI’S FINANCE: Takeaways from Q2

The reaction to second-quarter earnings reports has been mostly mixed among casino operators, as investors show some discernment between companies that have delivered profit growth and those that haven’t.

In the U.S., for example, regional operators that have reported growing profits and promising outlooks have been rewarded with higher share prices compared to quarter-end on June 30. Think Red Rock Resorts, Boyd Gaming and Monarch Casino.

Otherwise, the story has been more mixed, as have financial results and outlooks.

One modest surprise might be Churchill Downs, which continues to grow profits and issue bullish outlooks but whose shares are down modestly so far this quarter. In fact, shares are below where they were in early 2021 and currently trade at just over 13 times next year’s analyst earnings consensus.

The reason for the uninspiring price might be some skepticism that the company can continue its growth rate, to which we’d counter: Look at its record of execution and look at its growth plans. Another reason might simply be operating in a sector that isn’t exciting investors, who worry about tariffs, inflation, possible recession and who can’t see beyond the headlines about the Las Vegas Strip being slow and thereby tar everyone with a single brush. And to that, we again counter: Put away your tar and brush and look at Churchill’s execution and growth plans.

All of that aside, brick-and-mortar casino stocks have been generally uninspiring in the wake of second-quarter earnings reports and updated outlooks.

But there is an exception – Macau.

As of this writing, the stocks of all five Hong Kong-listed casino operators are up. Of the three American parents, Las Vegas Sands and Wynn are humming along, though the former may be because of its stunning numbers in Singapore and the latter for bucking the trend and growing nicely in Las Vegas.

The one down U.S. parent is MGM, but it also is the most dependent of the three on the Las Vegas Strip.

The other Macau non-gainer is Melco Resorts, whose stock has been basically flat, but it also is the one Hong Kong-based – as opposed to Hong Kong-listed – operator with non-Macau operations, so it isn’t a pure play on Macau.

Finally, as might be expected, all the Hong Kong-listed Macau casino stocks are up nicely. Even SJM, long the laggard among the pure plays, is enjoying investor bullishness.

And bullishness is the word. Macau as a market is on a roll. Visitation has been soaring and even though much of that growth has been dismissed as low-paying regional visitors and day-trippers, the fact is that gaming revenues are up too – not as much as visitation, but up impressively.

So, we’ll come back in three months and take a fresh look when third-quarter numbers are released. But as of now, it looks like more of the same – companies that execute and deliver on their guidance will be rewarded and Macau might be out of its years-long funk and growing steadily again.