On the surface, the Las Vegas locals gaming market appears solid. Year-to-date, gross gaming revenue (GGR) is up 6%, which has prompted sell-side analysts to wax bullish on Boyd Gaming (NYSE: BYD) and Red Rock Resorts (NASDAQ: RRR), but at least one analyst says forecasts may be too rosy.

Deutsche Bank’s Carlo Santarelli departs from his colleagues’ positivity on stocks tethered to the Las Vegas locals segment. In a recent note to clients, he pointed out that nearly all of that 6% top-line growth is attributable to Red Rock’s Durango Casino & Resort in Southwest Las Vegas, which opened in December 2023. Strip out that property, and Las Vegas locals GGR is actually down 3% in 2024, he said.

Red Rock executives addressed the issue earlier this year, noting cannibalization isn’t expected to be a long-term hurdle. In May, CFO Stephen Cootey said on the company’s first-quarter earnings conference call that population growth across the Las Vegas Valley can offset some of the lost business that Durango has taken from other Red Rock venues. There’s credibility in that statement because the operator’s planned new casino hotels in the area aren’t close to Durango.

Restrained Outlook on Boyd

Boyd Gaming is another example of an operator with Las Vegas locals exposure that Santarelli believes Wall Street is too hyped up about. To be fair, nine of the 16 analysts covering Boyd rate it the equivalent of a “hold” and unlike Red Rock, Boyd has geographic diversification.

Wall Street is constructive on Boyd due in part to the operator’s Las Vegas footprint and new projects, but Santarelli believes the sell-side’s assumption  that Boyd will shift from stalled to positive revenue growth ignores cracks in regional gaming markets.

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,” noted Santarelli.

He estimates that Boyd’s revenue and cash flow will drop 1.5% and 3.3%, respectively, next year.

Wary on Red Rock Estimates, Too

As Santarelli pointed out, Red Rock is an example of a Las Vegas locals stock on which analysts may be too bullish. Nine of the 14 that cover it rate it “buy” or “strong buy,” but that belies the possibility the operator’s cash flow and revenue will slightly decline next year.

“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,” wrote Santarelli.

He added that Red Rock would likely need to grow 2025 cash flow at a rate that currently looks hard to achieve in order to combat the effects of planned spending, including Durango expansion.

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