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The Las Vegas Strip is back and could be better than ever




At its peak in 2006, the Las Vegas Strip generated $ 569 million in monthly gambling revenue, and area casinos have never looked so healthy. But a wave of expansion and a pandemic in 2020 have left the region in dire straits. In 2020, Las Vegas averaged just $ 311.1 million in monthly gambling revenue and for a while the entire Strip was shut down.

Casino stocks have adjusted by raising funds and cutting costs, but for over a year the question for investors has been how long will the recovery in Las Vegas take? Companies have hinted that by fall 2021, business is expected to return to a more “normal” level, but we are already seeing an increase in gambling activity. In April, the Las Vegas Strip reported 483.4 million dollars in gaming revenue and it is likely that this will continue to rise as the number of COVID-19 infections declines and vaccination rates rise. Las Vegas may already be back and could be better than ever by the end of the year.

Craps table with chips and dice.

Image source: Getty Images.

A partial recovery to date

The recovery in Las Vegas is impressive, but it has not been uniform. Corporate clients, who drive weekday trips, did not return significantly, but weekend shoppers returned quickly. May’s beginning, Caesars Entertainment (NASDAQ: CZR)COO Anthony Carano has said the Las Vegas Strip is full this weekend for the foreseeable future.

It will likely take a lot longer for weekday business to pick up. Conventions and business trips are normally planned months, if not years, in advance, so we likely won’t see a full resumption of group stays in Las Vegas until late 2021 or 2022.

Carano said Caesars may have better convention and group activities in the future than it did in 2019, saying, “Group and convention room nights on the books for the second half of ’21 compared to ’19, currently increasing by around 20%, and we are also seeing good rate growth.The 2022 group turnover on books increases by around 15%.

Wynn Resorts (NASDAQ: WYNN) CEO Matt Maddox had similar thoughts on his conference call, “The back half of ’21 looks good, ’22 is really strong.” MGM Resorts (NYSE: MGM) CEO Bill Hornbuckle was more low-key, saying, “With the large groups expected to scale back in 22, our business in 22 and 23 is keeping pace with pre-COVID levels.”

There is a partial recovery today with good performance on the weekends, but the weekdays are still struggling. Based on management feedback, weekday activity could be extremely healthy by the end of 2021.

Could Las Vegas be better than before the pandemic?

What’s crazy is thinking that Las Vegas might actually be better off after the pandemic than it was in 2019. But it could happen, and bullish management comments indicate they expect. to a strong recovery.

It’s difficult to project the revenue and EBITDA (earnings before interest, taxes, depreciation and amortization), an approximation of casino cash flow, in Las Vegas, but we can get a sense of demand by looking at the prices of the casinos. bedrooms. I’m going to use Wynn Las Vegas as an example of where it looks like room rates are heading.

In 2019, Wynn Resorts’ average daily rate (ADR) was $ 269 per night. This fell to $ 235 in 2020, although revenue per available room was only $ 70. But looking at Wynn’s booking calendar, the rates are skyrocketing.

Casino companies do not give rooms reserved for future dates or rates, but we can get an idea of ​​booking trends just based on their booking sites. For a weekday in July (Monday through Thursday), rates for a standard king room at Wynn Las Vegas range from $ 159 to $ 399 per night. Weekend nights (Friday through Sunday), which, let’s remember, are in high demand, range from $ 254 to $ 719 per night. If we look at September, weekday rates range from $ 319 to $ 509 per night and weekends are $ 339 to $ 899 per night, with almost half of weekend nights currently at over $ 800. . There are also six nights in September that are totally unavailable at Wynn.

This is not a perfect approximation of demand, and prices may depend on events and time before a reservation is made, but the direction of pricing seems clear. The upward trend in room rates reinforces management comments that demand is extremely high later in 2021, and room rates may surpass 2019 highs by the end of the year . It could also translate into better income and better profitability.

Do casino stocks have more leeway?

Is it too late to get into casino stock? The three biggest listed operators in Las Vegas have actually done well for investors over the past three years. Only Wynn Resorts is down, and that is in part due to the decline of Macau, where the company generates most of its revenue.

WYNN chart

WYNN given by YCharts

I think casino stocks will continue to do well as the economy recovers and people flock to Las Vegas. There will likely be strong demand for entertainment and conventions over the next several years as consumers and businesses reconnect.

As an added bonus, we might also see casino companies reinstate or increase dividends once cash flow starts flowing again. Casinos are actually designed to be great dividend stocks because casinos require high upfront costs but generate cash for decades. And if revenues increase, there is more for investors, another reason to be optimistic about Las Vegas over the next few years.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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