Gaming analyst cuts price target for Caesars Entertainment, Red Rock Resorts and Sportradar ahead of second quarter results

It’s been a volatile year so far for casino and online gaming stocks. On Monday, a Wall Street analyst adjusted his expectations for gaming stocks ahead of the second-quarter earnings season.

The analyst: Bank of America Analyst Shaun Kelley made the following adjustments to the price targets for game stocks:

  • Caesars Entertainment Inc (NASDAQ:CZR), reiterated buy note, price target reduced from $90 to $75.
  • VICI Properties Inc. (NYSE:VICI), reiterated the buy rating, raised the price target from $32 to $34.
  • Sportradar Group SA (NASDAQ:SRAD), neutral rating reiterated, price target reduced from $15 to $10.
  • Red Rock Resorts Inc. (NASDAQ: RRR), reiterated the underperforming rating, cut the price target from $47 to $38.

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The thesis: In the second-quarter earnings preview note, Kelley said he expects strong results for businesses exposed to the Las Vegas Strip, given April’s strong trends in both gross revenue gaming and revenue per available room (RevPAR). Meanwhile, regional casino operators will face their toughest year-over-year comparisons of the year in the quarter. Kelley expects regional casino properties EBITDAR to decline approximately 8.8% and margins to decline approximately 4.55% from a year ago.

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“Comments on consumer spending will be the most critical part of earnings as investors assess exit rates, recession fears, inflation impacts and flagging confidence,” Kelley said.

The other two gaming trends investors will watch will be market weakness in Macau, China due to COVID-19 shutdowns and volatility in the US iGaming and online sports betting (OSB) market. Kelley said OSB and iGaming trends were strong in April and May, but OSB trends weakened in June.

Benzinga’s opinion: US casino stocks are certainly at risk if the economy falls into a recession, so it’s no surprise to see US casino stocks underperforming since the start of 2022. However, much of the negative sentiment in Las Vegas Sands Corp. (NYSE:LVS) and Wynn Resorts, Limited (NASDAQ:WYNN) is linked to Macau, so there could be potential for a relief rally in many of the other regional US casino stocks that don’t have exposure to China.

Eleanor C. William