On a pivotal Wednesday, Golden Entertainment, a prominent American gaming company known for its diverse gaming properties, slot routes, and taverns, announced that it would release its third-quarter financial results for 2024 after the market closes on November 7, 2024. In anticipation of these results, analysts have begun sharing their forecasts, highlighting potential challenges and opportunities for the company.

Deutsche Bank’s Outlook: Maintaining a Buy Rating

One of the most significant insights comes from Carlo Santarelli, a seasoned analyst at Deutsche Bank. In a recent statement reported by CDC Gaming, Santarelli confirmed that Deutsche Bank has maintained a price target of $36 for Golden Entertainment—indicating a premium above the company’s latest share closing price of $31.24. While this figure represents an optimistic view of the company’s future, Golden’s shares have faced considerable pressure, recording a 6.55% decrease over the past six months and a dramatic 22.09% drop year-to-date, translating to a loss of $8.86 per share.

Despite the downturn in share price, Deutsche Bank’s consistent Buy rating underscores a belief in the company’s potential, particularly in light of a possible strategic move involving the sale of one of its properties. This could help Golden Entertainment leverage a leaseback arrangement to improve its financial standing.

Challenges Facing Golden Entertainment

However, the optimism from Deutsche Bank is mitigated by current challenges facing Golden Entertainment. The analyst revised their financial forecasts downwards, largely due to ongoing issues in the Las Vegas gaming revenue sector and other external factors. Specifically, the company has encountered setbacks due to:

• Increased competition on the Las Vegas Strip, affecting its revenue potential.
• An excessively hot summer, which may have deterred beachgoers and locals from frequenting the company’s tavern offerings.
• Higher union contracts that impact operational costs.
• Ongoing challenges within the tavern division, particularly concerning margin and revenue.

These challenges have prompted analysts to carefully assess Golden Entertainment’s operational strategy moving forward.

The Potential Impact of a Sale-Leaseback Strategy

One particularly intriguing prospect presented by Santarelli is the potential for Golden Entertainment to engage in a sale-leaseback transaction. This type of strategy involves selling a property while simultaneously leasing it back for ongoing operations. Though no specific casino resort has been identified for this maneuver, the analysts explored how such a move could impact the company’s financial health.

If Golden were to execute a sale-leaseback with one of its properties, it could lead to an advantageous position by securing $87 million in rental income, derived from an anticipated $174 million in property-level earnings before interest, taxes, depreciation, and amortization (EBITDAR) projected for 2025. Santarelli highlighted that:

“We assume Golden on a 2025 year-end basis would have $130 million of net cash, including the proceeds and capitalizing the $87 million of assumed rent,” he noted, emphasizing the potential financial windfall.

Strategic Decisions Ahead for Golden Entertainment

As it stands, Golden Entertainment has not confirmed or denied any intentions regarding a sale-leaseback. Should the company decide to pursue this route, it would likely involve a rigorous review process, requiring approval not only from shareholders but also from the Board of Directors and pertinent regulatory agencies.

In the coming weeks, all eyes will be on Golden Entertainment as the company navigates its way through challenges while exploring strategic opportunities. With fiscal figures set to be disclosed on November 7, stakeholders will be eager to see how these changes may influence the company’s trajectory going forward.

Conclusion

In summary, Golden Entertainment’s upcoming financial results hold significant interest for analysts and investors amid a backdrop of fluctuating market conditions. The company’s grappling with challenges in Las Vegas and its potential strategic moves could define its future performance. With Deutsche Bank’s implications of a sale-leaseback and maintained optimism, the gaming company is at a crucial juncture that warrants close observation as it moves toward revealing its financial landscape later this year.

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In a recent investor note dated October 15, J.P. Morgan has revised its forecasts for MGM Resorts International, reflecting a more cautious outlook on the company’s financial performance. Analyst Joseph Greff attributed this downshift in projections to a confluence of factors that have raised concerns about the casino and hospitality giant’s ability to maintain its competitive edge, particularly in Macau.

Changing Landscape in Macau

Greff’s analysis highlights the uneven performance of MGM Resorts, underscoring shaky third-quarter results and disappointing fiscal year 2025 forecasts. While maintaining an Overweight rating on MGM’s stock, he has reduced the price target by $6 to $51 per share, down from earlier estimates. This reduction comes as the stock trades around $39.90, indicating significant volatility following a steep decline in August.

One of the critical concerns raised by Greff is the potential for MGM to lose market share in Macau, even as the region shows signs of recovery post-COVID. Despite reported improvements, including the best post-pandemic results in the Special Administrative Region (SAR), Greff believes the competitive landscape is shifting, potentially impacting MGM’s positioning in the lucrative gaming market.

Las Vegas Hotel Operations Under Pressure

Aside from the challenges in Macau, J.P. Morgan’s analysis pointed to weaknesses in MGM’s hotel operations in Las Vegas. The absence of competition from properties like the Mirage and Tropicana should theoretically boost profitability; however, Greff outlined that the prevailing hotel room rates remain soft. This situation indicates a struggle for the company to capitalize on reduced competition, placing further strain on revenue expectations.

It is worth noting that Greff excluded any contributions from new projects MGM has in development when formulating his projections, suggesting that the current analysis might not fully capture the company’s long-term growth potential.

Q3 and Q4 Cash Flow Projections

Greff’s updated short-term forecasts present a mixed picture. He anticipates MGM’s cash flow from the Las Vegas Strip for the third quarter to reach approximately $754 million. Additionally, he expects $298 million from regional casinos and $231 million from operations in Macau. Notably, these figures are more optimistic than broader Wall Street predictions, hinting at a belief that MGM could outperform specific market expectations.

For the final quarter of 2023, Greff predicts a cash flow drop to $749 million from Las Vegas, with $275 million expected from regional operations, and $274 million from Macau. In contrast, Wall Street experts are anticipating a more favorable outcome for MGM’s Q4 revenue from the Las Vegas Strip.

Adjusted Fiscal Year 2025 Expectations

Looking further ahead, Greff has made significant downward adjustments to his FY 2025 estimates. He now projects MGM Resorts’ cash flow from the Las Vegas Strip to be around $2.9 billion, marking a 5% decrease from earlier expectations. Additionally, the analyst estimates $1 billion in cash flow from Macau, a notable decline of 13% from his previous forecast.

Despite these concerns regarding the Strip and Macau, there remains a silver lining for MGM. Greff has increased his optimistic outlook for the company’s regional casinos in the United States. His revised expectation for cash flow from this area is now set at $1.1 billion, representing a 3% increase. This suggests that while MGM faces hurdles in its marquee markets, it may still find strength in its diversified operations.

Conclusion

J.P. Morgan’s revisions to MGM Resorts International’s projections illuminate the volatility and evolving landscape within the gaming and hospitality sectors. While there are challenges ahead—especially in key regions like Macau and Las Vegas—there are also opportunities that could bolster MGM’s performance. The cautious optimism reflected in Joseph Greff’s notes highlights the complex nature of the current market, where adaptability and strategic developments will be crucial for sustaining growth in the coming years. As the industry continues to navigate recovery from the pandemic, stakeholders will keenly watch MGM’s response to these challenges, as well as its potential to capitalize on emerging opportunities in the entertainment landscape.

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