We’ve been talking about a better than expected March and April for the regional casino markets, and through yesterday that appears to be coming to fruition.
Eight key states from our regional same-store sample have already reported March data and trends are looking strong with all 8 states showing material acceleration vs February growth.
February was never a major concern for us as it reflected one less critical weekend day, inclement weather in certain parts of the country, and a tough YoY comp. March is a major inflection for the regional gaming markets, aided by solid weather, accelerating vaccine rollouts, and consumers flush with stimulus cash.
March is also reflective of some easing capacity restrictions across key states, but it’s important to remember that March reflects a challenging calendar relative to March 2019 and holds 2 less weekend days.
Relative to 2019, Gross Gaming Revenue (GGR) per day for the 8 states is pacing up about 2%, which puts March on track for the best month of the recovery. The early to report states like Ohio, Iowa, and Missouri still hold the strongest levels of growth vs ’19 and post growth of > 5%, but other states like Indiana and Kansas have shown promising trends with growth accelerating from February by well over 1,000bps.
We expect commentary to be positive on upcoming conference calls and the trends in April could be equally as strong as a better calendar (extra Friday) + easing capacity restrictions + lingering stimulus dollars support the industry growth.
Analysts should keep raising numbers and sentiment will move higher on the regional gaming companies should these strong brick & mortar trends continue.
To us, Boyd Gaming (BYD) still represents the best risk / reward in the space, and we see share upside well into the $80’s. Q1 and Q2 estimates remain way too low.
SPORTS BETTING | AZ & AL GAIN TRACTION
Over the last few days there has been some momentum and traction brewing on sports betting (SB) legalization front with legislators in Arizona and Alabama pushing SB bills.
Arizona looked like it was off the table earlier this year, but new compacts with the gaming tribes allowed SB and early reports suggest that AZ will adopt a competitive framework with a reasonable tax rate. Details have yet to be ironed out, however.
In Alabama, a bill to expand gaming including SB handily passed the senate yesterday and will move to the House for consideration but ultimately will have to be voted on by the people of Alabama in a November 2022 referendum. These are positive developments for the SB industry and create a path towards broader adoption across the US, but they don’t necessarily offset New York's desire to adopt a less competitive model for SB (NY was slated to be one of the biggest SB markets).
In our view, the “TAMs” that were raised materially over the last number of months could be readjusted lower as new state rollouts slow down, the industry comps against a very strong 2H’20, and overall sentiment cools off.
We remain cautious on the immediate term set up for SB and feature Draft Kings (DKNG) as a Best Idea Short which can be paired against our $BYD Long which reflects our decidedly more bullish view of B&M casino trends.