Sorry to knock the regionals again but are there any catalysts to get these stocks to reverse fortune? The numbers look bad and that’s with a gas tailwind.
Illinois, Indiana, and Michigan are all out for August and they look like crap. Same store revenue fell 10%, 12%, and 5%, respectively, and the moving average line is negative and trending downward for each state. If this is recovery, I’d hate to see a depressed environment.
Here are the catalysts. Try and find a positive one among them.
- ISLE did not provide any comfort on their 8/26/09 conference call:
- “Cost reductions may be over”
- “Discounting accelerating”
- July no better than May and June
- No improvement in August other than an easier comparison
- Gas price tailwind reversal – this is a biggie
- Despite 50% lower gas prices year-over-year, gaming revenues look terrible. We’ve shown that every 10% change in gas prices has a 1.5% inverse impact on regional gaming revenue. What happens when gas prices are up 50% in December and into 2010? See our recent note “GAMING REGIONALS: NOT YET IN THE RECOVERY ROOM” (08/23/09)
- The Consumer – Housing, the “wealth effect”, need vs want
- We and our macro team have written extensively on the long-term structural issues facing the American consumer
- Regression to the mean
- Casino revenue as a percentage of PCE keeps falling from its mid-2008 peak. We’ll have more on this in a later post
So why do the analysts show 2H09 growth in revenues for most of the regional gaming companies (see below)? Growth in 2010 might even be a stretch, especially considering the gas headwind in the first half of 2010. A recovery thesis looks very premature. Look for estimates to come down for most of the regionals.
