VICI Properties (NYSE: VICI) is enduring a slight year-to-date loss, yet the premier holder of casino real estate continues to draw attention on Wall Street. Over 83% of the analysts covering the Caesars Palace proprietor have a comparable “buy” evaluation on the stock and some estimates suggest the real estate investment trust (REIT) could witness earnings per share (EPS) growth surpassing 93% this year. Even more noteworthy is the fact that the shares of VICI are trading at a mere 13.1x expected earnings.
The extensive deals in 2021 and 2022, including the acquisition of the Venetian and Sands Convention Center on the Las Vegas Strip and the purchase of MGM Growth Properties by VICI last year, are some of the reasons why the REIT should be able to generate considerable earnings this year. Wall Street is taking note as VICI was recently added to JPMorgan’s focus list for April, making it the only gaming name in that list.
CPI-linked leases, which drive visible earnings growth, and competitive capital costs, which enable accretive investing, are two of the main factors leading to a visible surge in earnings for 2023 and 2024, according to analyst Anthony Paolone. He has an “overweight” rating on the REIT. The consensus price target on VICI is $37.68, implying a potential upside of roughly 17% from today’s close.
Substantial Enthusiasm for VICI
VICI was separated from Caesars Entertainment (NASDAQ: CZR) in 2018 when the casino corporation needed to raise funds. Presently, the real estate company is one of two publically traded REITs with a focus on gaming properties; the other is Gaming and Leisure Properties (NASDAQ: GLPI).
VICI has ownership of 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. Additionally, it is the primary landlord for MGM Resorts International (NYSE: MGM). Due to these affiliations, VICI is the largest property holder on the Las Vegas Strip.
Possessing the real estate assets of renowned venues such as Caesars Palace, Mandalay Bay, MGM Grand and the Venetian has earned VICI a high-end portfolio that analysts and investors find appealing.
In a report to clients earlier in the 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 Displays Resilient Traits
From an investment standpoint, the gaming REIT industry has to surmount the obstacles of being comparatively newer and smaller than other real estate sub-groups, such as apartments, healthcare, offices and retail.
VICI can address those concerns through astute acquisitions, continued dividend growth and diversification of its customer base.
“Since the emergence of the Gaming REIT sector, the resilience of the business model for this asset class has been the greatest concern,” wrote Macquarie analyst Chad Beynon. “However, we believe it continues to gain approval as US Gaming post-pandemic results have revealed robust top-line demand and improved profit margins and cashflow, the most important factors for VICI. While dynamic, we forecast peak to trough revenues to better withstand what the Street is expecting for both the US regional market and Las Vegas.”
