Gaming stocks have performed well in 2010, potentially signaling escalating expectations for the Q4 earnings season.
The following chart shows year-to-date performance for the largest gaming stocks as a gauge for investor expectations as we head into the Q4CY2009 earnings season.
PNK is the only gaming stock down year-to-date and after seeing those Louisiana numbers yesterday, it’s not hard to know why. Even so, the stock is only down 2% on the year. The regionals as a whole have been the laggard, up only 3%, relative to the major market operators and slot companies which have appreciated 23% and 10%, respectively.
Leading the way are the three US based Macau operators, MGM, LVS and WYNN, up 34%, 25% and 22%, respectively. As we’ve written about, both LVS and WYNN will likely beat current consensus projections pretty handily. We’re more concerned with “whisper” expectations which seem to have gotten pretty high. Analysts may be setting the stage for disappointment. The appreciation in MGM, on the other hand, may be more due to the incredibly high short interest in the stock at the end of 2009 combined with a growing belief that the Q4 may have represented the trough in Las Vegas. We covered the potential for this outcome in our 12/15/09 post, “MGM: THE CONSENSUS SHORT”.
For the gaming equipment suppliers, calendar Q4 2009 looks like it may come in a little better than expected for the sector. We’re not sure that will matter since Street estimates for the March and June quarters look a bit aggressive to us. Likewise though, lower near term estimates may not matter much if the focus continues to be on new markets. The long-term outlook for this group is very bright, mostly due to new markets. It may take a slippage in the timing of new markets to drive the stocks in this sector down. History suggests this is a real possibility.
Back to the regional operators. We haven’t liked this group for a few months now due mainly to fundamentals. Despite easy comps, revenue growth remains negative and could have been worse, if not for very low gas prices y-o-y. The gas tailwind has now reversed, potentially squashing any hopes for positive growth in 1H2010. As forecasted in the stocks, Q4 earnings and guidance are not likely to be catalysts for share appreciation.