Viva Las Vegas Demand Trends, Analyst Likes Caesars, VICI Properties

For all the talk about high inflation and rising interest rates potentially stoking economic contraction, Las Vegas Strip demand trends are far from pricing in a recession.

In a note to clients on Thursday, Macquarie analyst Chad Beynon points out that internet searches for Las Vegas travel jumped 7% in August, building on gains of 5% in July and 3% in June. There are indications that momentum is carrying over into this month, supporting the research firm’s bullish outlook on Strip gross gaming revenue (GGR).

The strong results through August and September 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),” wrote Beynon.

Further supporting the case for Strip-oriented equities, Beynon acknowledges that while Las Vegas visitation remains about 9% below 2019 levels, spending per visit is running approximately 40% ahead of levels seen in the last year before the emergence of the coronavirus pandemic.

In terms of specific stocks, Beynon said Macquarie s top Las Vegas ideas 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 in the US casino center. The Bellagio operator derives about 47% of its revenue from the Strip, while Caesars gets 45% of sales from the area, according to Beynon.

Importantly, all three names, particularly MGM and Caesars, are signs that convention business is bouncing back. Beynon noted a long-term rebound in group and meeting business is a catalyst for Strip operators.

That jibes with comments made earlier this week by MGM CFO Jonathan Halkyard at Deutsche Bank’s 30th Annual Leveraged Finance Conference. He said there’s for returning to face-to-face conventions, which is seen in the operator’s bookings extending well into 2023.

As noted above, Strip visitation levels remain below what was seen before the COVID-19 crisis, but a slew of upcoming marquee events in Sin City could change that for the better.

Longer term, we see the return of conventions and a strong sports/event calendar in the next couple of years (e.g., NCAA Men’s Division I basketball tournament games, Formula 1, Las Vegas Raiders and Golden Knights games, and the 2024 Super Bowl, among others) to provide some level of support for Strip GGR and non-gaming revenues,” added Beynon.

The F1 race, which takes place in November 2023, could be an epic moneymaker for Strip operators and the city. For example, MGM is believed to be constructing ticket and room packages for the race $100K.