LEISURE LETTER (03/26/2104)

TICKERS:  IGT

EVENTS TO WATCH:  UPCOMING EARNINGS/CONFERENCES

Today, March 26

  • IGT negative pre-announcement call 8:30 am "IGT"
  • PENN at TAG Spring Consumer Conference
  • Melco Crown Extraordinary General Meeting
  • Melco Crown Board Meeting  

 Friday, March 28

  • Nevada gaming revenues release for February 

 

COMPANY NEWS     

IGT – announced a large reduction in guidance. In response, the company initiated a cost cutting program that will reduce G&A by $30 million this year and $50 million on a run rate basis coupled with a 7% reduction in work force. 

 

TAKEAWAY:  Poor weather and regional results, a lack of new casinos, and continued share losses in the participation business are responsible, in our opinion.  Regional revenues are likely to be under continued pressure in March.  It's interesting that this cost cutting announcement happens a mere 48 hours after the company renews its WOF licensing agreement and pays Sony Entertainment $185 million in upfront royalties. Since, Patti Hart was named President and CEO, five years ago (to the date) IGT stock is +63% versus the S&P 500 +150%.

                                    

INDUSTRY

Las Vegas home prices – the S&P/Case-Shiller Home Price Index rose 24.9% for January while Clark County population increased 2.9% during 2013 to 2.06 million people.

 

TAKEAWAY:  The wealth effect should help support the recovery of the Las Vegas locals gaming market benefiting Boyd Gaming and Stations Casinos.

Eastern Massachusetts – the City of Boston requested the State of Massachusetts revisit and redo the environmental impact study for the proposed Mohegan Sun and Suffolk Downs’ casino project.

 

TAKEAWAY:  Gotta love MA politics.

Western Massachusetts – The Massachusetts Supreme Court in May will consider Repeal the Casino Deal’s proposed referendum to invalidate and undo Massachusetts gaming laws.

 

TAKEAWAY:  See above.

NJ online poker - Borgata and Party Poker NJ are offering their New Jersey patrons the opportunity to deposit funds via a prepaid card. Like other recently introduced cashiering options, the prepaid card provides players otherwise unable to make deposits and withdrawals via more traditional means – namely Visa and MasterCard – with a sorely needed back-up plan. Borgata, unlike Party, currently does not support the widely popular payment processor Skrill.

 

TAKEAWAY:  Borgata’s prepaid card is another frustrating and suboptimal solution to an ongoing problem.

MACRO

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 

 

TAKEAWAY:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.