Golden Entertainment Cooled by Hot Summer, Analyst Still Bullish

Posted on: September 23, 2024, 01:20h. 

Last updated on: September 23, 2024, 01:35h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

This summer was the hottest on record in southern Nevada, prompting some would-be bettors to stay out of locals’ casinos and gaming bars in Las Vegas and Laughlin. As a result, B. Riley analyst David Bain lowered estimates on Golden Entertainment (NASDAQ: GDEN).

Still, Bain remains constructive on the stock, reiterating a “buy” rating with a new price target of $40, down from $44. That new forecast implies upside of about 33% from where the shares reside at this writing. There is some merit to the notion that a hot summer weighed on Golden as the stock is lower by 3.23% over the past 90 days, contributing to a year-to-date loss of 25.48%.

This summer was the hottest in Las Vegas weather history, negatively impacting attendance at local resorts, casinos, and taverns, in our view,” wrote Bain. “Further, while LV convention attendance remains stable, July convention attendance was -7%, tied to show rotation cycles and the absence of the AWFS Fair held last July. We believe Laughlin traffic, while still up, slowed slightly in 3Q, and overall lower-tier customer weakness across the industry continues.”

Golden owns and operates the Aquarius and Edgewater in Laughlin where it tussles with Caesars Entertainment (NASDAQ: CZR) for the top spot in that market.

Strat Could Boost Golden Entertainment

Officially, the Strat isn’t on the Las Vegas Strip, but it’s close, and that casino hotel is the premier property in the Golden Portfolio. Bain, who lowered 2024 and 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates on Golden, noted the Strat’s weekend occupancy rates have been solid, but midweek is still below 2019 levels.

We believe occupancy back to CY19 levels equates to $15M+ EBITDA at the STRAT, a vast majority of which is not factored into consensus or our estimates. We expect forward city-wide convention attendance trends, particularly beginning in 4Q24E, to serve as an intermediate-term positive for STRAT midweek occupancy,” noted the analyst.

Bain added that Strat could see a $1 million to $2 million quarterly EBITDA boost from Atomic Golf, which opened in March. Bain and other analysts have also highlighted the Strat as a beneficiary of the Tropicana demolition and the temporary closure of the Mirage.

Golden to Focus on Share Buybacks

Golden is likely to continue emphasizing the return of capital to investors, primarily through repurchasing its own shares.

We believe GDEN continues to repurchase shares, and it will likely exhaust the remaining $61M on its share repurchase before the end of the year, in our view,” said the analyst. “Given net leverage 1 turn below its 3.0x target, we believe GDEN could look to utilize both free cash flow and a portion of its $240M undrawn revolver to continue significant share repurchases through next year.”

Bain added that with interest rates declining, Golden could consider selling the real estate on which its casinos sit, a move that could add up to $12 per share value. The company hasn’t said it is considering such transactions.