Las Vegas Near-Term Traffic Trends Could Cement Second Half 2021 Recovery

Posted on: December 31, 2020, 01:22h. 

Last updated on: December 31, 2020, 01:40h.

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

Amid coronavirus pandemic restrictions, this won’t be a typical New Year’s Eve in Las Vegas. With cold weather expected over the next couple of months, Sin City’s lethargic recovery pace is expected to linger into the first quarter. But one analyst believes near-term traffic trends could set the stage for an earnest rebound in the US gaming hub in the second half of 2021.

Las Vegas
The Las Vegas Strip. Analyst Chad Beynon says a recovery in the second half of 2021 is possible. (Image: CNBC)

Macquarie analyst Chad Beynon recently evaluated visitation data at domestic casinos, noting trends are worsening, as many domestic gaming properties are either shuttered again or operating at severely limited capacity owing to another spike in COVID-19 cases.

Given the colder months and normal seasonal weakness, we expect the fourth quarter and first quarter of 2021 to remain as bad or worse than the third quarter for the exposed companies,” said the analyst in a note to clients.

While that’s a gloomy near-term outlook, one solidified by the fact that the US gaming mecca is heading toward its worst tourism slowdown in three decades, Beynon believes an increase in traffic over the next 60 to 90 days could pave the way for a legitimate recovery in the second half of next year.

Green Shoots Emerging

Over the course of the pandemic, Wall Street consensus is that Macau will recover more rapidly than Las Vegas because of pent-up demand among Asian gamblers, and in the US, regional gaming operators are more attractive for investors because those companies aren’t as dependent on business travel and guests arriving by plane as Sin City is.

That thesis hasn’t been proven inaccurate. But Beynon sees some signs of life for the largest US gaming center. He calls searches for Las Vegas rooms 60 to 90 days out “extremely encouraging,” and notes that “looks/books” for that period are up 15 percent compared with low single-digit growth a year earlier.

Should that trend materialize into actual bookings and visits, the analyst sees companies such as MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR) benefiting. Those are the two largest operators on the Strip.

Beyon rates Caesars a “buy,” with an $85 price target, which implies upside of about 13 percent from the Dec. 31 close. He also has a “buy” grade on MGM, with a $36 forecast. That’s nearly 14 percent above where shares of the Bellagio operator closed today.

Some Safety with Caesars

Caesars runs some of the Strip’s most famous venues, including Caesars Palace, Bally’s, and the Flamingo. So it’s only natural that many investors think of it as a Las Vegas recovery play.

However, roughly 75 percent of the company’s third quarter revenue was generated outside of Sin City, underscoring the benefits of an expansive regional portfolio. That trait helped the stock to a 23.56 percent gain in 2020, while MGM, which is more tethered to Strip trends, slumped 6.25 percent.

Additionally, when Caesars finalizes its takeover of William Hill in the first quarter, it will control all of the economics of its iGaming and sports betting businesses. That’swhile rival MGM shares those benefits with joint venture partner Entain, the company previously known as GVC Holdings.