It’s been no secret the Research Edge crew has been negative on consumer spending. Our view on falling housing prices, rising employment, the wealth effect, and a rising savings rate has been pretty consistent. For the regional gaming players, the three macro factors that matter are local housing prices, unemployment levels, and gas prices.
- Housing prices have been running down YoY mid to high teens since January and have fallen every month since January 2007. In fact, the last month where the YoY change in housing prices increased sequentially occurred way back in November, 2005. Assuming housing prices stay at current levels, prices will fall 3-4% in 2009.
Unemployment, of course, is accelerating, up to 6.1% in October and 1.3% higher than last year. Enough with the bad news. Gas prices are plummeting which is good for the regional casino business. If they stay at this level, gas prices will be down a whopping 35-40% in 2009 vs. 2008.
- So I’ve run the regressions and I have a macro model based on the three factors. If we hold gas prices and housing prices constant as discussed, and assume an average 7% unemployment rate in 2009, regional same store revenues are projected to be flat. I’ve charted consensus same store revenues for ASCA, BYD, PENN, and PNK which look surprisingly reasonable. Analysts project positive same store revenue growth for only PNK and ASCA due to the removal of the loss limit in Missouri while BYD and PENN are projected to be negative again.
- The regional gaming stocks are dirt cheap. Any indication that revenue trends may stabilize in 2009 should be a huge catalyst. Gas may be the stabilizer to offset the continued softness in housing and rising unemployment.
Regional gaming revenues negatively correlated to gas prices
Analysts' 2009 projections actually look reasonable