“Despite cautious outlook commentary from locals operators of late,” Wall Street is pursuing aggressive forecasts for Station Casinos and Boyd Gaming. That’s according to Deutsche Bank analyst Carlo Santarelli, in a November 19 investor note.
Although Las Vegas locals-casino revenue is up six percent this year, Santarelli observed that the growth has been driven entirely by Station’s Durango Resort. He said Durango is on pace to achieve a $160 million return on investment this year and estimated that Durango will achieve $340 million in net revenue for 2024 and $260 million in gross gambling win.
Minus Durango, however, the Las Vegas locals market is down three percent for the year. Also, the partial cannibalization of revenue at Red Rock Resort and other Station properties “has offset the favorable margin profile of Durango.”
Looking ahead for Boyd, Wall Street analysts predicted more revenue, but narrow cash flow, with a one percent increase in operating expenses. Santarelli wasn’t buying it.
To swing from revenue negative to revenue positive at the present time, he opined, “seemingly ignores the underlying same-store [gross gaming revenue] cadence in the market being negative.” Santarelli said that flat margins and even modest revenue growth are things “operators would struggle to achieve, even in the most benign expense-creep environments.
“Perhaps we are being conservative, but given the trajectory of the market, much like regional markets prior, which remain challenged, we don’t see the pivot and resumption of same-store growth occurring in 2025,” the analyst wrote. Defying Wall Street consensus, he projected a 1.5 percent revenue decline for Boyd in 2025, along with a 3.3 drop in cash flow.
For Station, Santarelli modeled a modest 0.7 percent revenue decline, along with a 1.5 percent dip in cash flow for next year. By contrast, Wall Street foresaw revenue and cash-flow increases of 1.2 percent.
Mused the analyst, “This one is particularly curious in our view, given the relatively detailed color from management on the 3Q24 call, as well as the aforementioned underlying market dynamics.” Adjusting for Durango’s effect, he noted, cash flow was still down three percent in 2024.
While that could be overlooked, Santarelli continued, three cash-intensive projects weighed on the 2025 balance sheet. To overcome that $23 million headwind, he argued, Station would have to swing around to four percent positive cash flow next year, far more than Wall Street has projected.
