Why Regional Gaming Companies Are Dominating Their International Rivals

In a new report out this week, Barclays analyst Felicia Hendrix discussed the Q2 performance of regional U.S. gaming companies Penn National Gaming Inc PENN, Pinnacle Entertainment Inc PNK and Boyd Gaming Corp BYD. While Hendrix says that it’s too early for investors to get overly excited at this point, all three companies are currently on track to beat consensus Q2 revenue forecasts.

What To Watch

So far in Q2, April and May’s performance has put these three regional gaming companies on pace to top consensus Q2 revenue estimates by 3 to 7 percent. However, Hendrix cautions that June tends to be a weak month in many U.S. regions.

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In addition, she notes that she believes that the share prices of Pinnacle and Boyd are currently pricing in the possibility of REIT spin-offs.

Penn

So far in Q2, strong performance from Penn's facilities at Charles Town and Dayton have more than offset weakness at Mahoning Valley. Penn is currently tracking $24.5 million ahead of Barclays' revenue estimates for Q2.

Pinnacle

According to the report, all of Pinnacle’s facilities that are located in states that report monthly revenue numbers are tracking ahead of Barclays' Q2 expectations. Hendrix notes that L’Auberge Lake Charles is performing surprisingly well, indicating less-than-expected cannibalization from the new Golden Nugget facility.

Boyd

Boyd’s facilities at Delta Downs and Kansas Star have outperformed so far in Q2, and the company is tracking $14.8 million ahead of Barclays' Q2 estimates.

Boyd may be the toughest Q2 call of the three, however, as about 38 percent of the company’s revenue comes from Nevada, a state that does not report monthly property-level data.

Regional Outperformance

While exposure to the struggling Macau market and other factors have weighed heavily on the share prices of large, international rivals Las Vegas Sands Corp LVS, MGM Resorts International MGM and Wynn Resorts Ltd WYNN, all three U.S. regional companies have been strong performers in the past year.

All three regional gaming stocks are up at least 25 percent in the past 12 months, while the stocks of the three larger international competitors are all down at least 28 percent during that same time. Barclays top pick of the three regional names is Overweight-rated Penn National.