MGM, Caesars Supported by Strip Resilience, Penn Takeover a Stretch, Says Analyst

Posted on: July 18, 2024, 05:23h. 

Last updated on: July 18, 2024, 05:23h.

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

Las Vega Strip trends remain sturdy and that’s good news for MGM Resorts International (NYSE: MGM) and Caesars Entertainment (NASDAQ: CZR). Looking elsewhere in the gaming industry, a near-term takeover of Penn Entertainment (NASDAQ: PENN) appears unlikely.

commercial gaming revenue casino sports betting
The Las Vegas Strip at night. An analyst is bullish on Strip giants MGM and Caesars. (Image: Getty)

Those are the takes of Truist Securities analyst Barry Jonas. MGM and Caesars are the two largest Strip operators and while the US casino center is displaying signs of resilience, but the stocks have not displayed much in common of late. Over the past month, shares of MGM are higher by 12.16% while Caesars is up just 1.22%. Year-to-date, the Bellagio operator is sporting a small gain while Caesars is lower by 22%.

Some of the lag in Caesars stock, which analysts are acutely aware of, is the result of state-level performances that trail rival MGM, according to Jonas.

We believe this is largely a function of management’s playbook of efficiently managing promos/margins, as opposed to anything structural/permanent,” observed the analyst.

Jonas added some market participants have thrown in the towel on Caesars stock, but that gloomy outlook ignores the potential for management to materially reduce debt — an effort that could be assisted by asset sales — and growth outlets in the form of new regional casinos in Nebraska and Virginia as well as the refurbishment of the operator’s New Orleans integrated resort.

Boyd Probably Not Moving on Penn Over Near-Term

In his report, Jonas also discussed several regional casino operators, including those with heavy Las Vegas locals exposure. Boyd Gaming (NYSE: BYD) was part of that conversation.

Boyd has been rumored to be mulling a takeover of $9 billion or more of rival Penn, but the former hasn’t publicly confirmed that interest and analysts widely believe the latter isn’t a willing seller at this point. Jonas concurs, but he noted Boyd’s sturdy balance sheet was one reason the speculation popped up. Still, he said there are complexities tied to a potential Boyd/Penn deal.

“We think the complexity of a transaction (likely involving multiple parties, requiring multiple divestitures as well as consent from landlord Gaming & Leisure Properties, while PENN is on the verge of releasing new ESPN Bet features … that should meaningfully improve their product, points to any deal as less likely,” wrote the analyst.

ESPN Bet is seen as a likely sticking point for Boyd because the operator would not want to pay up for Penn’s interactive business. That’s stoked speculation about a third party, potentially FanDuel parent Flutter Entertainment (NYSE: FLUT), getting involved, but with ESPN Bet currently commanding scant share in the US sports betting market, it’s allure to suitors could be diminished.

Bally’s Could Accept Takeover Offer

Speaking of casino consolidation chatter, Jonas said that with Bally’s (NYSE: BALY) having procured needed financing for its Chicago integrated resort, the company could be more likely to accept the takeover offer floated by Standard General earlier this year.

The hedge fund controlled by Bally’s Chairman Soo Kim offered $15 a share for the gaming company earlier this year — far below the suitor’s $38 per share acquisition overture made in March 2022. Standard General is the largest Bally’s shareholder.

Jonas speculated that with Chicago financing taken care of, Bally’s is less likely to reject the acquisition offer and could accept it while deploying “a number of value enhancing measures.”