As we move towards 2023, there is a general belief that the difficult combination of high inflation and higher interest rates will eventually limit consumer discretionary spending, including gaming-related activities. However, Caesars Entertainment (NASDAQ: CZR) and Century Casinos (NASDAQ: CNTY) are demonstrating that consumer demand for gaming remains strong in the first quarter in spite of macroeconomic pressures. According to Macquarie analyst Chad Beynon, who recently released a report titled “Looking for Weakness in All the Wrong Places”, Nevada casinos have been recording more than $1 billion in gross gaming revenue (GGR) each month for almost two years.
Beynon also noted that events and conventions in Las Vegas, room rates and overall revenues are very healthy and will be supported by additional catalysts in the latter part of the year. As the second-largest operator on the Las Vegas Strip and one of the dominant casino names in the Reno-Lake Tahoe and Laughlin markets, Caesars is highly exposed to the vibrancy of the Nevada gaming market.
Century Casinos, a smaller regional operator, recently acquired the Nugget Sparks which marks their first venture into Nevada and is expected to generate long-term EBITDA growth. Furthermore, the company may explore more mergers and acquisitions, including those in Las Vegas.
Bally’s (NYSE: BALY) could be a good casino equity redemption story, according to Macquarie. This is based on their upcoming debut of a temporary gaming venue in Chicago which will eventually be replaced by a permanent venue, their most expensive to date. Despite the $1.7 billion price tag associated with the project, Bally’s has several ways to raise the necessary capital, including debt, equity, cash, and proceeds from a sale-leaseback with Lincoln. Additionally, Atlantic City is seeing improved hold back and the business has been EBITDA-positive in February, even in the off-season.