Las Vegas local casino stocks face 2025 test

Posted: 2 January 2025, 04:50 pm.

Last updated: 2 January 2025, 04:50 PM.

Shares of casino operators with significant investments in the Las Vegas local market were mixed in 2024 and there could be even more shares in store this year as this segment is expected to experience modest growth.

That's the view of Deutsche Bank analyst Carlo Santarelli, who called 2024 “an interesting year” for Las Vegas locals in a new report to clients. For Boyd Gaming (NYSE: BYD) and Golden Entertainment (NASDAQ: GDEN), the big test of 2024 was the foray into Red Rock Resorts (NASDAQ: RRR) Durango Casino & Resort in Southwest Las Vegas.

While Durango enjoyed quick success, Santarelli acknowledged that in 2024, local Las Vegas operators will report lower earnings before interest, taxes, depreciation, amortization, and restructuring or rental costs (EBITDAR) and same-store sales. Because there has been a slight increase in operating costs. That's what sent shares of Golden and Red Rock down, making Boyd the only member of the trio to trade higher in 2024.

Boyd could star in Red Rock 2025

Santarelli said better-than-expected revenue growth could help Boyd and Red Rock shares significantly this year.

We believe a favorable and growing gaming revenue cadence in 2025 will lead to outperformance at both Red Rock and Boyd, although in the absence of market growth, we believe consensus forecasts will likely be Will prove aggressive,” the analyst said.

He said Durango, which is scheduled for significant expansion this year, is not a threat to gaming venues along the Boulder Strip and North Las Vegas — areas that are home to Boyd and other Red Rock casinos. The analyst said 2025 could be another year of impressive revenue growth for Durango.

“Given the premium margin relative to the portfolio, we estimate Durango's annual net revenues for 2024 will be approximately $340 million,” Santarelli said. “Assuming that the net revenue split by property is broadly the same as the portfolio total, we estimate annual net casino revenues of approximately $225 million, with annual gross gaming revenues of approximately $260 million.”

Las Vegas Local Workforce Trends

For investors, evaluating workforce trends in the local Las Vegas market may prove instructive as many of an operator's employees move their gaming business to other locations operated by their employer or competitors.

Santarelli said that from 2014 to 2019, employment growth at local Las Vegas properties grew roughly in lockstep with the 3% compound annual growth rate (CAGR) in revenues posted by those properties, but since 2019, top-line CAGR increased to 5.1%. Job growth increased only 0.9%.

Santarelli concluded, “We do not view above-trend gaming revenue growth as problematic, although we are somewhat concerned by workforce-growth trends relative to the gaming revenue growth trajectory as it relates to the 2025 outlook.” “This concern stems from slow workforce growth and challenging comparisons in 2025, as gaming revenue per member of the workforce increased 4.2% over the past 12 months, driven primarily by the impact of Durango.”