Las Vegas Strip Nongaming Revenue Proving Sturdy, Says Analyst

Posted on: December 1, 2023, 03:31h. 

Last updated on: December 9, 2023, 02:10h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Nevada casino companies notched gross gaming revenue (GGR) of $1.315 billion in October, the best October on record and the sixth-best month in history. But contributions from the nongaming side lifted Las Vegas Strip operators.

Nevada casinos Las Vegas gaming revenue GGR
The Welcome to Las Vegas sign. Nongaming revenue can support Strip operators, says an analyst. (Image: Shutterstock)

Strip operators, such as Caesars Entertainment (NASDAQ: CZR), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN), posted October sales of $714 million, an impressive feat when considering the month included one less weekend than it did in 2022. Among the catalysts was a revenue increase per available room (RevPAR).

Strip RevPar growth in Oct came in at +13% YoY, while visitation increased 2% YoY (-1% vs 2019). Based on Las Vegas STR data through Nov. 25, we estimate that Strip RevPar growth could accelerate to ~18% in November, driven by continued lodging strength at the high end (link) and F1 for the weekend of Nov. 17-19,” wrote Macquarie analyst Chad Beynon in a note to clients on Friday.

He’s likely onto something with that assessment, as MGM CFO Jonathan Halkyard said at the Bank of America Leveraged Finance Conference earlier this week that the Las Vegas Grand Prix weekend was the highest-grossing weekend in the history of the operator’s Strip venues.

Las Vegas Strip October Vibrancy Could Lead to Q4 Beats

A potential positive for operators such as Caesars, MGM, and Wynn is that they offer guests many revenue-generating amenities beyond gaming. That’s crucial when it appears as though GGR may have hit a temporary top.

That’s to say, Las Vegas Strip operators can continue posting solid revenue growth and prove resilient even if gaming revenue experiences a modest decline. That resilience also dispels the notion that Las Vegas casino companies generate the bulk of their sales from gaming. In reality, food and beverage, and entertainment stoke more revenue than gaming.

That’s important because gaming revenue can be volatile, but other sources can smooth things out for Strip operators.

“Assuming similar market share for MGM, CZR, and WYNN and minimal cyberattack disruptions, we expect MGM and CZR to beat expectations in 4Q for their Las Vegas segments,” adds Beynon. “Given the continued resiliency in Vegas, we are increasing our 4Q Strip GGR forecast to -1 % YoY (from -3 % YoY). We now expect +4% GGR growth in 2023.”

Individual Stock Ideas

Caesars, MGM, and Wynn are the three largest publicly traded Strip operators. Beynon has “outperformed” ratings on the first two, with price targets implying upside of 45% and 47%, respectively, from current levels. The analyst has a “neutral” rating on Wynn, though his price forecast on that stock implies upside potential of 36%.

Of that trio, Wynn is least levered to the Strip, as Las Vegas accounts for 23% of its revenue. Macau is the biggest driver of that company’s earnings and sales.

The Strip accounts for 47% of MGM’s sales and 45% of Caesars’ revenue, according to Macquarie data.