Casino stocks are having a bad hangover after reaping the rewards last year from Floyd Mayweather's megafight with Conor McGregor in Las Vegas. But as Sin City changes, analysts are split on how casinos will come off the ropes.
XMGM Resorts International (MGM), Caesars Entertainment (CZR), Las Vegas Sands (LVS) and Wynn Resorts (WYNN) sold off hard recently, after warning revenue will fall dramatically in Q3 on difficult year-ago comparisons.
Vegas Casino Stocks: The Bull Case
Las Vegas is a volatile market, but its unique mix of attractions, its status as a major convention hub, and the strong economy will allow it to bounce back, Jefferies managing director David Katz told IBD.
He cited the strong business climate and GDP, improving entertainment offerings, and an ample convenient airport. "I think Vegas is the pre-eminent conference and convention destination in the country for all those reasons."
Meanwhile, he noted the forthcoming arrival of the Oakland Raiders, adding star power after the NHL's Vegas Golden Knights became the first team from a major pro league to be based in the city. Sports teams also generate recurring revenue and are more reliable than one-off major events such as the Floyd Mayweather vs. Conor McGregor fight.
"I think the Vegas market has become a more and more full experience and it is going to become even more full," Katz said.
Shares of MGM are up 0.8% on the stock market today and up 2.3% so far this week after diving 7% last week. Caesars recouped 7% this week after plunging 17% last week. Las Vegas Sands is up 0.5% for the week, after last week's 4% loss, and Wynn has regained 2.3% after losing 8.7% last week.
Vegas Casino Stocks: The Bear Case
But Katz acknowledges growing resistance among visitors to rising resort fees, which started at about $30 a day for previously free perks like the pool and gym and now are at $45-$50. Those come on top of fees for parking, which also used to be free but can cost $30 a day too.
While he doesn't think they are affecting visitation to Las Vegas, he said "They've gotten a little high."
However Deutsche Bank managing director Carlo Santarelli thinks it is unlikely Sin City will ever recover its status as a top destination for bargain-savvy vacation hunters.
"I think overall Las Vegas as a value destination ... has more or less gone by the wayside now. Las Vegas was always the story of having 5-star accommodations at three and four star prices," Santarelli said. "Now, given how expensive the rooms have gotten inclusive of the resort fees, as well as the amenity costs as well as (food and beverage), all these things have changed the perception of Vegas as being a value destination"
And while Las Vegas may remain the No. 1 convention hub in the U.S., competing cities such as Chicago, Orlando, San Francisco, Los Angeles, New York and Boston are fighting hard to win share.
Las Vegas still offers a differentiated venue with its large hotels, plenty of food and beverage amenities and large convention spaces, all under one roof in some instances. But the environment has become more competitive, Santarelli said.
"The value spread of Las Vegas relative to some of these other major conference cities has shrunk a little bit," he said.
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