The outlook for gaming stocks in the latter half of 2024 has taken a downturn, according to a recent note from J.P. Morgan. Analysts have cited decelerating trends in consumer spending and a slowing macro economy as key factors contributing to the lowered expectations for share prices and valuations. Despite these concerns, certain stocks like Caesars Entertainment, Wynn Resorts, and Red Rock Resorts are still favored by analysts due to their unique market positions and growth potential.
Decelerating Trends Impacting Gaming Stocks
The gaming industry is facing a challenging environment as consumer spending slows down. J.P. Morgan’s report highlights that the deceleration in spending is a significant factor affecting the performance of gaming stocks. This trend is expected to continue throughout the rest of 2024, leading to lower expectations for share prices and valuations.
Analysts have noted that the Las Vegas Strip had a mixed second quarter, with non-gaming spend performing better than expected, while table games and slot handle were flat to down year over year. This mixed performance has contributed to the cautious outlook for the second half of the year.
Additionally, concerns about the macro economy are weighing heavily on the gaming sector. The combination of these factors has led to a more conservative approach from investors, who are now adjusting their expectations for the remainder of the year.
Favorable Stocks Amidst the Downturn
Despite the overall negative sentiment, certain gaming stocks are still viewed favorably by analysts. Caesars Entertainment and Wynn Resorts are among the top picks due to their strong presence on the Las Vegas Strip and their potential for growth. Caesars is particularly noted for its underappreciated free-cash-flow generation and ability to de-lever, while Wynn’s assets in Las Vegas and Macau are seen as valuable.
Red Rock Resorts is another stock that continues to show stable growth. The company’s favorable dynamics in the Las Vegas locals market and recent insider share purchases have contributed to its positive outlook. The momentum of the Durango Casino & Resort is also a key factor in Red Rock’s continued stability.
DraftKings is highlighted as a promising stock due to the growth of online sports betting revenue with the arrival of the football season. This growth is expected to provide a boost to the company’s performance in the coming months.
Market Dynamics and Future Outlook
The gaming market is experiencing a shift in dynamics as investors adjust their expectations. J.P. Morgan’s report indicates that room rates for the third quarter in Las Vegas are running higher year over year, with midweek rates up by 10% and weekend rates up by 1%. This increase in room rates is a positive sign for the market, but it is not enough to offset the broader concerns about consumer spending and the macro economy.
Analysts are also keeping an eye on the performance of U.S. regional gaming markets, which have shown resilience despite lower revenue and margin expectations. The Las Vegas locals market remains solid at the high-end, providing some stability amidst the broader challenges.
Looking ahead, the gaming industry will need to navigate the ongoing economic uncertainties and shifting consumer behaviors. While certain stocks may continue to perform well, the overall outlook for the sector remains cautious for the rest of 2024.
