Bank of America Reviews Q1 Gaming Sector Performance

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Major gaming and entertainment companies across the U.S. have recently shared their financial results, shedding light on their Q1 performance this year. In this context, Bank of America (BofA) has published its first quarter earnings scorecard, as reported by CDC Gaming.

The report compares estimates with actual results, noting that six companies managed to surpass expectations. While six gaming businesses exceeded BofA’s forecasts, one matched the predictions, and four operators fell short of the targets set for the first half of 2024. Following the release of this scorecard, BofA announced several actions and updates based on the financial outcomes of these gaming companies.

Adjustments to Gaming Companies’ Ratings

Wynn Resorts

According to the scorecard, BofA maintained its outlook for Wynn Resorts, setting a price target of $115, approximately 10 times its 2024 EBITDAR estimate. Wynn Resorts disclosed Q1 revenue of $1.86 billion and EBITDA of $647 million, aligning closely with expectations; the EBITDA prediction was $622 million.

Shaun Kelley, a BofA analyst, remarked, “We estimated the share was 14% and in line with our expectations.” He noted that in Las Vegas, EBITDA was $246 million, aligning closely with their above-consensus $247 million. Non-gaming spending surpassed their expectations, while gaming spending was slightly below due to year-over-year declines in slot volumes. Overall, their forward estimates have decreased slightly, with higher estimates for Macau being offset by lower estimates for Las Vegas.

Promising Prospects

Wynn Resorts has demonstrated notable financial performance over the last couple of years, consistently achieving robust revenue and EBITDA figures. In 2023, the company reported annual revenues of $7.3 billion, a significant increase from $5.4 billion in 2022. This growth was driven by a recovery in tourism and gaming activities, particularly in Las Vegas and Macau, following the global pandemic. Wynn’s EBITDA also showed positive trends, rising to $2.5 billion in 2023 from $1.8 billion the previous year. These figures underscore Wynn Resorts’ resilience and ability to adapt to changing market conditions, maintaining strong financial health amid global economic fluctuations.

In Las Vegas, EBITDA was $246 million, matching our above-consensus $247 million. Non-gaming spend exceeded our expectations, whereas gaming spend was slightly lower due to year-over-year declines in slot volumes. Overall, our forward estimates have moved slightly lower, with higher Macau estimates offset by lower Las Vegas estimates.

Looking forward, Wynn Resorts has promising prospects, supported by strategic expansions and a focus on enhancing its entertainment offerings. The company’s investment in new projects, such as the development of Wynn West in Las Vegas and the expansion of its Macau operations, is expected to drive future growth. Analysts anticipate that Wynn’s revenue and EBITDA will continue to improve, with projections suggesting a 10% increase in EBITDAR by 2025. Moreover, Wynn’s commitment to incorporating innovative technologies and diversifying its non-gaming revenue streams positions it well to capture a broader market share and sustain long-term growth. Overall, Wynn Resorts appears poised for continued success, leveraging its strong financial foundation and strategic initiatives.

PENN Entertainment

PENN Entertainment reported Q1 revenue of $1.61 billion and an EBITDA of $256 million, aligning with BofA’s estimate of $1.59 billion in revenue and $260 million in EBITDA. Kelley noted, “Penn reduced digital revenue and EBITDA expectations significantly and lowered core property EBITDA guidance, leading to a sell-off in shares.” Consequently, BofA downgraded PENN’s rating to neutral.

Dynamic Performance

PENN Entertainment has experienced a dynamic financial performance over the past couple of years, marked by both growth and strategic adjustments. In 2023, the company reported annual revenues of $6.5 billion, reflecting a steady increase from $5.9 billion in 2022. This growth was bolstered by PENN’s diversified portfolio of gaming properties and its strategic acquisitions, such as the acquisition of Barstool Sports. The company’s EBITDA also saw a rise, reaching $1.7 billion in 2023 compared to $1.5 billion in the previous year. These results highlight PENN Entertainment’s effective operational strategies and its ability to capitalize on market opportunities in the gaming and entertainment sector.

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Looking ahead, PENN Entertainment’s prospects appear promising, driven by its focus on digital expansion and enhanced customer engagement. The company is investing heavily in its online gaming and sports betting platforms, aiming to capture a larger share of the rapidly growing digital market. Analysts project that PENN’s revenue and EBITDA will continue to rise, with an expected increase of around 12% in digital revenue by 2025. Additionally, PENN’s emphasis on leveraging data analytics and personalized marketing is set to improve customer retention and acquisition. These strategic initiatives, coupled with a strong balance sheet, position PENN Entertainment for sustainable growth and competitiveness in the evolving gaming industry.

Red Rock Resorts

On the other hand, Red Rock Resorts reported Q1 revenue of $490 million and EBITDA of $210 million, in line with BofA’s expectations of $510 million in revenue and $210 million in EBITDA. As a result, BofA upgraded the company’s rating to neutral.

Favorable Growh Prospects

Red Rock Resorts has demonstrated a consistent financial performance over the last couple of years, reflecting its strategic management and operational efficiency. In 2023, the company reported annual revenues of $1.9 billion, up from $1.7 billion in 2022. This growth was primarily driven by the robust performance of its Las Vegas properties and the successful implementation of cost-control measures. Red Rock’s EBITDA also showed positive trends, increasing to $700 million in 2023 from $650 million in the previous year. These financial results highlight the company’s ability to navigate market challenges and maintain profitability.

The future looks promising: Red Rock Resorts has favorable growth prospects, supported by its ongoing investments in property development and technological enhancements. The company is focusing on expanding its portfolio with new projects, including the development of the Durango Station in Las Vegas, which is expected to attract a diverse customer base and drive future revenue growth. Additionally, Red Rock is leveraging advanced data analytics to enhance customer experience and improve operational efficiencies. Analysts project that these strategic initiatives will lead to a 6-8% increase in annual revenue by 2025. Overall, Red Rock Resorts appears well-positioned for continued growth, leveraging its strong financial foundation and strategic investments to capitalize on market opportunities.

Summary of Q1 Performance

In summary, the first quarter of 2024 saw mixed results among major gaming companies. Six out of eleven companies managed to exceed BofA’s expectations, one matched the predictions, and four fell short. Wynn Resorts remained steady with a maintained outlook and specific price targets. PENN Entertainment faced a downgrade due to lowered digital revenue and EBITDA expectations, while Red Rock Resorts saw an upgrade after meeting the financial expectations.

Bank of America’s detailed analysis and subsequent actions reflect the varying performances within the gaming sector, highlighting areas of growth and challenges faced by different companies. These insights provide valuable information for investors and stakeholders in the industry.