Las Vegas Showing a Robust Rebound According to Morgan Stanley
In a recent Morgan Stanley research report:
- Las Vegas EBITDA +28% versus Consensus estimates FY21
- Las Vegas Revenue +14% versus Consensus estimates FY21
- Hotel occupancy may already be ahead of Consensus
- 2022 estimates a majority return to in-person conventions
- Upgrades to OW Caesars Entertainment (CZR) and MGM Resorts International (MGM)
- Remains OW on Boyd Gaming (BYD) and Wynn Resorts (WYNN).
After a recent visit to Las Vegas, Morgan Stanley forecasts a fast, strong recovery, noting especially positive booking trends. They believe the Consensus grossly underestimates the earnings power of companies exposed, and hence have upgraded CZR and MGM to overweight (OW), and reiterate they are OW on both BYD and WYNN.
With such headwinds, Morgan Stanley expects EBITDA performance FY21 and FY22 to be significantly ahead of the Consensus. Morgan Stanley emphasised how numerous Las Vegas market participants stated to them that:
- their bookings were stronger than current occupancy,
- booking windows were extending and continued to build.
With the market still lacking convention visitors, MS' experience was that the South Strip (CZR/MGM properties) was busier than the North Strip (WYNN/LVS properties). Leisure customers illustrated that demand for Las Vegas is there and are spending more per visitor than they have in the past. Moreover, MS' research with Corporate Travel Managers estimates a majority return to in-person conferences in 2022.
A number of market participants highlighted May as the pivot month when they expect current government restrictions to be relieved. The convention calendar looks better for 2022 as there are big events in 2H21 that have been converted to virtual. Importantly given Las Vegas is heavily reliant on airlift for its customer traffic, airlines have been sequentially increasing supply to the market each month. MS expects shows and live entertainment to ramp up in the summer too, although sadly some may never return.
An interesting market metric is that in 2022 there will be more convention square footage versus YE19, while hotel room growth over the same period will be lower. This, MS believes, should create hotel room compression, especially for CZR and WYNN.
Operator cost upsides were also highlighted, with examples given including: lower/mid-tier properties no longer having room service; and a reduction in management layers. MS expects procurement savings to really show when volumes return, illustrated by regional market performance.
On U.S. sports betting and iGaming, MS notes that both CZR and MGM now realise the importance of being successful in these verticals; they are willing to spend whatever it takes. MS expects MGM to grab a higher market share than previously forecast, reflecting its strong execution via BetMGM (a joint venture with Entain plc).
Net-net, MS raises its estimates and price targets on CZR/MGM, bringing them up to join BYD/WYNN as OW.
For a fuller text, please go to our Casino Life Magazine News post here.