More Las Vegas Casinos Reopen, Demand 'Still Appears Low'

The reopening of the Las Vegas Strip has gone relatively well for casino operators since resorts began opening back up last week.

Even more properties returned to operations this week, but the latest room rate numbers suggest Vegas still has a long way to go in recovering from its shutdown, according to BofA Securities.

What Happened?

A limited number of Las Vegas casinos opened back up starting June 4, and initial demand was strong enough for operators to expand those openings ahead of schedule this week.

Unfortunately, Vegas Strip operators Las Vegas Sands Corp. LVS, MGM Resorts International MGM, Wynn Resorts, Limited WYNN and Caesars Entertainment Corporation CZR are all seeing extreme declines in hotel room rates, BofA analyst Shaun Kelley said in a Friday note.

As of Friday, Wynn and Las Vegas Sands have all their Strip properties open. MGM is planning to reopen Luxor on June 25 and Mandalay Bay, Delano Mirage and Park on July 1. Caesars is reopening Linq on Friday and Planet Hollywood, Rio, Paris, Bally’s and Cromwell next week.

Why It's Important

Initial demand in Vegas so far this month has been better than feared, but Kelley said “demand still appears low” for hotel rooms in the near-term. The analyst estimates Vegas room rates are down 38%, 47% and 31% in June, July and August, respectively. Cumulative website traffic for Vegas resorts is down more than 40% year-over-year, he said.

Kelley said the cancellation of Vegas events and conferences will continue to weigh on room rates given these events drive demand for some of the Strip’s highest-priced rooms.

“We are cautious on the pent-up demand narrative for the Strip and believe without group/convention business, the recovery will continue to lag other areas of Gaming,” the analyst said.

Bank of America estimates that Las Vegas Sands will endure the smallest drops in average room rates in the near term, with average rates in June and July falling 24% and 43%, respectively.

Wynn has the highest average room rates on the Strip, and Kelley estimates it will endure the largest drop in average rates. He projects 43% and 53% declines in June and July, respectively.

Benzinga’s Take

Reopening properties was the first hurdle for Vegas casino stocks to overcome on the road to recovery. Now that the Strip is reopened, the focus will shift to room rates and margins to determine just how profitable these casino stocks can be in a sub-optimal environment.

For investors looking to play the Vegas recovery, Bank of America has the following ratings and price targets for major Las Vegas casino operators: