This summer marked the hottest on record in southern Nevada, causing a dip in attendance at local casinos and gaming bars in Las Vegas and Laughlin. Consequently, B. Riley analyst David Bain lowered his estimates on Golden Entertainment (NASDAQ: GDEN).
Despite the heatwave’s impact, Bain maintains a positive outlook on Golden Entertainment stock, reaffirming his “buy” rating. However, he adjusted the price target down to $40 from $44, suggesting an upside potential of about 33% from its current level. The intense summer heat contributed to a 3.23% decline in Golden’s stock over the past 90 days, leading to a year-to-date loss of 25.48%.
“This summer was the hottest in Las Vegas weather history, negatively impacting attendance at local resorts, casinos, and taverns,” Bain wrote. “While Las Vegas convention attendance remains stable, July saw a 7% drop, partly due to show rotation cycles and the absence of the AWFS Fair held last July. We believe Laughlin’s traffic, although still up, slowed slightly in the third quarter, highlighting overall lower-tier customer weakness across the industry.”
Golden Entertainment, which owns and operates the Aquarius and Edgewater in Laughlin, competes with Caesars Entertainment (NASDAQ: CZR) for market dominance in the area.
Although the Strat isn’t officially on the Las Vegas Strip, it remains close and stands as the flagship property in Golden Entertainment’s portfolio. Bain lowered the 2024 and 2025 earnings estimates for Golden, noting that while the Strat’s weekend occupancy rates are robust, midweek figures still lag behind 2019 levels.
“We believe a return to 2019 occupancy levels at the Strat translates to over $15 million in EBITDA, a majority of which is not accounted for in consensus estimates,” Bain noted. “We expect positive trends in city-wide convention attendance, particularly beginning in the fourth quarter of 2024, to benefit the Strat’s midweek occupancy.”
Bain also mentioned that the Strat stands to gain a $1 million to $2 million quarterly EBITDA boost from Atomic Golf, which opened in March. Additionally, analysts see the Strat benefiting from the demolition of the Tropicana and the temporary closure of the Mirage.
Golden Entertainment is likely to continue prioritizing capital returns to investors, mainly through repurchasing its own shares.
“We believe GDEN continues to buy back shares and will likely exhaust the remaining $61 million for share repurchases before the year’s end,” said Bain. “Given its net leverage position, 1 turn below its 3.0x target, GDEN could use both free cash flow and a portion of its undrawn $240 million revolver to continue significant share repurchases into next year.”
Bain suggested that, with declining interest rates, Golden might consider selling the real estate under its casinos, which could add up to $12 per share in value, though the company has not indicated any plans to pursue such transactions.
