Churchill Downs, MGM Among Top Gaming Equity Ideas Ahead of Q2 Earnings

Second-quarter earnings harden kicked sour this calendar week and it’s just a affair of years before gaming companies tread into the earnings confessional.

In aggregate, gaming equities lagged the S&P 500 in the number 1 half of the year, but Churchill Downs (NASDAQ: CHDN) and MGM Resorts International (NYSE: MGM) could follow among the industry’s winners inwards earnings flavour and beyond. That’s the accept of Macquarie psychoanalyst Republic of Chad Beynon who highlighted that pair, among others, in a wide-ranging describe to clients on Wednesday.

As we seem into 2H23E, we expect Gaming caudex outperformance given stalls basics and discounted valuations,” wrote the analyst. “Historically, the sphere has strong macro instruction correlations, but fundamentals feature of late outpaced inflation given overall wealth creative activity peculiarly with older eld cohorts.”

Published Wednesday, the June indication of the Consumer Price Index (CPI) showed an step-up of just 0.2% on a month-over-month basis, which is less than economists expected. While rampant administration disbursal forced rising prices to multidecade highs shoemaker's last year, it is now cooling, and that moderation could live a plus for Las Vegas Strip and regional casino operators.

Churchill Downs: Regional Standout

While Winston S. Churchill Downs has no Las Vegas Strip exposure and there are lingering concerns well-nigh the province of the US Equus caballus racing industry, the stock is a gaming favourite on Wall Street.

Beynon anointed the gunstock one of his top ideas for the secondly half, calling it a standout among regional gaming companies due to a robust pipeline and a projected three-year chemical compound yearbook growing rate of 20%-plus. That’s the highest inwards the analyst’s coverage universe, excluding Macau cassino equities.

In increase to the on-going ramping of assets that came online shoemaker's last year, other drivers of the John Churchill Downs investment funds thesis include enhancements at its eponymous, storied Bluegrass State raceway as good as historical horse racing simple machine (HRM) and regional gambling casino elaboration crossways multiple states.

“This well-diversified growth includes 1) Turn 1 experience; 2) DCG expansion/hotel; 3) LA HRMs inward OTBs; and 4) DCG Downtown Louisville, inwards increase to ramping assets from 2022. In 2024, we wait $190m+ of additional send off yield EBITDA from 1) the Paddock project; 2) Queen of Terre Haute, 3) P2E growth (Dumfries, Rosie’s Emporia, other HRMs); and 4) Chaser’s (NH), as well as $35m from the Exacta Systems deal,” observed Beynon.

Vegas Vibes Strong for MGM

Up 40.35% this year, MGM is I of the gaming equities outpacing the broader market place — a public presentation goaded inwards component by the resilient Las Vegas Strip as well as the Macau resurgence.

Beynon lauded the manipulator for “upmarket” moves inward Sin City, including the acquisition of Cosmopolitan and the sales agreement of the Mirage. Those transactions increment MGM’s leverage to luxury consumers that are often less vulnerable to economic downturns. The analyst added that BetMGM is thriving and said investors may not follow fully appreciating the operator’s Macau exposure.

“For digital, we look BetMGM to produce revenue ~35% inward 2023 and go along to believe in that respect are opportunities to figure out for the 50/50 stake. With ane of the strongest equilibrate sheets, supportive shareholders, and a goal to follow a world(a) digital leader, we await this chance to lick the wager issuing to be a priority,” concluded the Beynon.

Translation: MGM owns 50% of BetMGM with Entain controlling the other half, but the former at present has the resources to potentially buy the latter out of that arrangement.

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