VICI Properties Revered on Wall Street

Posted on: April 6, 2023, 04:29h. 

Last updated on: April 7, 2023, 11:21h.

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

VICI Properties (NYSE: VICI) is saddled with a modest year-to-date loss. But the dominant owner of casino real estate continues attracting a crowd on Wall Street.

Loop Caesars
Caesars Palace Las Vegas. Owner VICI Properties is beloved on Wall Street. (Image: Getty Images)

More than 83% of the analysts covering the Caesars Palace owner have the equivalent of a “buy” rating on the stock. By some estimates, the real estate investment trust (REIT) could post earnings per share (EPS) growth of 93% or more this year. Under any circumstances, that’s impressive. But it’s even more so when considering VICI shares trade at just 13.1x expected earnings.

Extensive deal-making in 2021 and 2022, including the purchase of the Venetian and Sands Convention Center on the Las Vegas Strip and last year’s acquisition of rival MGM Growth Properties, stands as one reason VICI should be able to significantly grow earnings this year. Wall Street is taking note. For example, VICI was recently added to JPMorgan’s focus list for April, making it the only gaming name in that group.

Significant CPI-linked leases drive visible earnings growth, and competitive capital costs allow for accretive investing — both leading to highly visible earnings growth for 2023 and 2024,” wrote analyst  Anthony Paolone in a note to clients.

He rates the REIT “overweight.” The consensus price target on VICI is $37.68, implying upside of approximately 17% from today’s close.

Palpable Enthusiasm for VICI

VICI was spun out of Caesars Entertainment (NASDAQ: CZR) in 2018 when the casino giant needed to raise cash. Today, the real estate firm is one of just two publicly traded REITs with an emphasis on gaming properties. The other is Gaming and Leisure Properties (NASDAQ: GLPI).

VICI owns the property assets of 18 gaming venues operated by Caesars, including Caesars Palace and Harrah’s on the Strip, and Caesars Palace on the Atlantic City Boardwalk. Likewise, it’s the primary landlord to MGM Resorts International (NYSE: MGM). As a result of those relationships, VICI is the biggest property owner on the Las Vegas Strip.

Owning the real estate assets of venerable venues such as Caesars Palace, Mandalay Bay, MGM Grand, and the Venetian gives VICI a high-end portfolio analysts and investors find desirable.

In a note to clients earlier this week, Mizuho Securities initiated coverage of VICI with a “buy” rating and a $35 price target. Citing a “high-quality portfolio” and the REIT’s defensive traits, Mizuho believes VICI could outperform in the current macroeconomic environment.

VICI Sports Resilient Traits

From an investment perspective, the gaming REIT industry has to clear the hurdles of being newer and smaller than other real estate sub-groups, such as apartments, health care, offices, and retail.

VICI can allay those concerns via shrewd acquisitions, continued dividend growth, and diversification of its client base.

“Since the creation of the Gaming REIT sector, the resilience of the business model for this asset class has been the biggest question,” wrote Macquarie analyst Chad Beynon. “However, we believe it continues to gain acceptance, as US Gaming post-pandemic results have highlighted strong top-line demand and improved profit margins and cashflow, the most important items for VICI. While dynamic, we expect peak-to-trough revenues to fare better vs what the Street is expecting for both the US regional market and Las Vegas.”