Stock Wars: Century Casinos Vs. Red Rock Resorts

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector, with the goal of allowing readers to decide which company is the better investment. This week, the duel is between a pair of gaming companies: Century Casinos, Inc. CNTY and Red Rock Resorts Inc RRR.

The Case For Century Casinos: Century Casinos was founded in Denver in 1992 by several executives from the European gaming company Century Austria; it later relocated its headquarters to Colorado Springs.

The company owns two casinos in Colorado and two in Missouri, as well as operates the Mountaineer Casino, Racetrack and Resort in West Virginia owned by VICI Properties Inc VICI.

The company also owns four casinos in Canada and eight in Poland.

Earlier in the year, the company revealed it was in negotiations with Totalizator Sportowy, Poland’s state-run gambling operator, for the sale of its Polish operations, but no deal has been forthcoming.

Last November during the earnings call on its third-quarter 2020 report, co-CEO Peter Hoetzinger predicted that 2021 will be a “very, very busy M&A situation in the U.S.”

But eight months into the year, the company has yet to announce an acquisition, although it did announce plans this summer to move its riverboat casino operations in Caruthersville, Missouri, to dry land and build a new hotel for its gaming patrons.

The company’s U.S. casinos reopened in June 2020, albeit with capacity limits on their operations while the COVID-19 pandemic was peaking; its Polish casinos did not reopen until May 28, 2021, and the Canadian venues were unable to reopen until June 10, 2021. Needless to say, this had a profound impact on its latest quarterly earnings.

In its second-quarter earnings report published on Aug. 6, Century Casinos reported revenue of $92.1 million, a $155% spike from the $36.1 million one year earlier when the pandemic disrupted the gaming industry. The company’s earnings from operations totaled $18.1 million, compared to a $2.1 million loss one year before, and the company also noted it had no substantial debt maturities before 2026.

The significant shift from the previous year had a larger-than-normal impact on the company’s adjusted EBITDA — $25.2 million, a year-over-year increase of 1,532% from -$1.7 million — while basic and diluted earnings per share (EPS) were 23 cents and 22 cents, respectively, compared to -43 cents for both EPS categories one year prior.

At last check, Century Casinos was trading at $14.17 a share, closer to its 52-week high of $15.84 and far from its 52-week low of $4.39.

The Case For Red Rock Resorts: Red Rocks Resorts can trace its roots to Stations Casino in 1976, which operated Bingo Palace, a Las Vegas gambling hall with 100 slot machines that catered primarily to a local clientele rather than the tourist and business conference set that flock to the city’s major gambling meccas.

The company’s financial history has been hectic, to say the least. It went public in 1993 but was taken private in 2007, only to declare bankruptcy in 2009 and emerge anew in 2011. It returned to the stock market in 2016 under the aegis of Red Rock Resorts, its holding company.

The Nevada-focused Red Rock Resorts’ biggest transaction this year was in May with the $650 million sale of its Palms Casino Resort in Las Vegas to the San Manuel Band of Mission Indians. The Palms Casino, which the company purchased in 2016 for $312.5 million, was one of four properties the company has kept shuttered since the pandemic began. The company is now running five casinos plus an additional seven under the Wildfire Gaming brand.

In July, the company announced plans for a new casino in the southwest Las Vegas valley, but offered no update on when or if its shuttered venues would reopen.

CEO Frank Fertitta said the new project, which would accommodate 100,000 square feet of gaming space and a 200-room hotel, is “a great development opportunity in the most underserved part of the Las Vegas valley.”

As with Century Casinos, the company had a lopsided year-over-year second-quarter performance based on the pandemic’s disruptive force.

In its latest earnings report published on July 28, the company’s net revenues were $428.2 million, a 295% increase from $108.5 million for the same period of 2020. Net income was $143.4 million, up from a loss of $118.4 million one year before.

Adjusted EBITDA was $210.2 million in second-quarter 2021, compared to -$17.3 million in second-quarter 2020. Basic and diluted EPS were $1.24 and $1.12, respectively, compared to -$1.10 for both EPS categories one year prior.

At last check, Red Rock Resorts shares were trading at $43.21, closer to its 52-week high of $46.61 than to its 52-week low of $13.74.

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The Verdict: In judging these companies, it is obvious that both have strengths and issues.

On the positive side, they are making up for lost time as gamblers are eager to put the pandemic behind them and return to the slot machines and gaming tables.

On the other hand, both have concerns with properties for which they seem to have lost their love, such as the Polish venues for Century Casinos and the trio of still-closed Las Vegas settings for Red Rock Resorts.

Century Casinos had the extra burden of having its Canadian and Polish venues shut for much longer than its U.S. operations — had its overseas gaming halls been open sooner, its revenue stream would certainly be much stronger.

Furthermore, both companies are using game plans that — at least to the outside observer — seem curious. The fact Century Casino did not live up to its co-CEOs' plan for merger and acquisition activity this year is disappointing, and why is Red Rock Resorts planning a new casino development when it has a trio of establishments that are just gathering dust? One could assume the company is seeking buyers for those venues — perhaps the Century Casino team can finally acquire a property or two via Red Rock Resorts?

And yet, both companies are trading near their 52-week highs. Obviously, investors are not perturbed by how the respective executive teams run their operations.

For this Stock Wars duel, the real challenge will be how the companies proceed through the remainder of 2021. While either stock is a good buy at this time, perhaps it would make sense to wait through the third quarter or even fourth quarter to see how the casinos proceed, especially as the Delta variant and rising inflation are creating mayhem for the economy.

Photo: Greg Montani / Pixabay.