The imminent closures of Tropicana Las Vegas and The Mirage Hotel & Casino will reduce room supply on the Las Vegas Strip by 4.9%, serving as a near-term earnings catalystA stock catalyst is an engine that will drive your stock either up or down. A catalyst could be news of a new contract, SEC filings, earnings and revenue beats, merger and acquisit... More for casino operators. MGM Resorts International dominates the market with nearly 37,000 rooms across 13 properties. Other major players include Caesars Entertainment, Wynn Resorts, and Genting Group, with VICI Properties owning several key locations.

The closure of The Mirage, which generated $596M in revenue and $169M in EBITDAR in FY23, represents significant demand that will be redistributed among other operators. Analysts suggest this could benefit middle-tier properties of MGM and Caesars until the Hard Rock Las Vegas opens in spring 2027. Despite investor concerns over operating costs and macroeconomic uncertainties, the Las Vegas Strip has shown resilience, supported by rising average daily room rates and strong consumer spending. Analysts predict 2Q24 earnings to meet or slightly exceed expectations, potentially lifting investor sentiment as supply contraction impacts become clearer.

Major Players on the Strip

MGM Resorts International

MGM Resorts International (MGM) stands as the dominant operator on the Las Vegas Strip, boasting nearly 37,000 rooms across 13 properties. These include some of the most recognizable names in the hospitality industry, such as Luxor, Aria, Excalibur, Bellagio, Mandalay Bay, The Cosmopolitan, Park MGM, and New York-New York. MGM’s vast portfolio positions it as a key beneficiary of the upcoming supply contraction.

Caesars Entertainment and Other Key Operators

Caesars Entertainment (CZR), along with Wynn Resorts (WYNN) and Genting Group, are also significant players on the Strip. VICI Properties (VICI), another notable entity, owns landmark establishments such as Caesars Palace Las Vegas, MGM Grand, and the Venetian Resort Las Vegas. With the closure of The Mirage, some of MGM Resorts’ and Caesars Entertainment’s middle-tier properties could see increased demand until Hard Rock International completes its redevelopment of the former Mirage site. Hard Rock has announced plans to reopen the site as Hard Rock Las Vegas in the spring of 2027.

Impact of The Mirage Closure

Revenue and Demand Redistribution

In FY23, The Mirage generated approximately $596 million in revenue and $169 million in EBITDAR (earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs). This revenue was driven by about 1 million occupied room nights, indicating substantial underlying demand that will now need to be redistributed across the remaining properties on the Strip. The estimated potential incremental EBITDAR for Caesars Entertainment, Golden Entertainment (GDEN), MGM Resorts International, and Wynn Resorts, based on their fair share of The Mirage’s occupied room nights, suggests a significant boost for these operators.

Long-Term Supply Contraction

The significance and longevity of this supply contraction are largely underappreciated. The closure of The Mirage, combined with the earlier mentioned Tropicana Las Vegas, represents a notable reduction in room availability, which could positively impact room rates and occupancy levels for the remaining hotels. This dynamic creates a favorable environment for the existing operators to capitalize on increased demand and potentially enhance their profitability.

Investor Sentiment and Market Outlook

Current Sentiment and Challenges

Investor sentiment towards the Las Vegas Strip remains cautious amid concerns about operating expense inflation and macroeconomic uncertainties. Despite these challenges, the overall fundamental performance on the Strip has been resilient, even with new supply additions such as Fontainebleau Las Vegas and Resorts World Las Vegas. Average daily room rates continue to rise, and although occupancy has not yet returned to pre-pandemic levels, consumer spending remains robust, supported by a strong event calendar and the recovery of convention and international demand.

Earnings Expectations and Forward Estimates

Analysts project that second-quarter 2024 earnings for the Strip will be in line with or slightly ahead of expectations. The tangible catalyst from the material supply contraction provides an optimistic outlook for the second half of 2024. Analysts believe that current forward estimates may be overly conservative, suggesting room for upward revisions that could improve investor sentiment.

Insights

1. Room supply reduction on the Las Vegas Strip could boost earnings for remaining operators.
2. MGM Resorts International is the largest operator on the Strip with 37,000 rooms.
3. The Mirage’s closure indicates significant market demand needing redistribution.
4. Despite challenges, the Strip shows resilience with high consumer spending and room rates.

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• Core Topics: Las Vegas Strip hotel room supply reduction, impact on casino operators, market demand redistribution, investor sentiment.
• Description: The closure of major hotels will reduce room supply, potentially boosting earnings for existing operators like MGM Resorts. Significant market demand from The Mirage’s closure will benefit competitors until Hard Rock Las Vegas opens. Despite challenges, strong consumer spending and rising room rates suggest resilience in the market.

The Guerilla Stock Trading Action Plan

1. Monitor Developments: Track the closures of Tropicana and The Mirage and the redistribution of demand.
2. Evaluate Investments: Consider investing in MGM Resorts, Caesars Entertainment, and other key operators expected to benefit.
3. Assess Market Trends: Keep an eye on average daily room rates and occupancy levels.
4. Anticipate Hard Rock Opening: Plan for the potential market shift with the reopening of Hard Rock Las Vegas in 2027.

Blind Spots

Potential impact of new entrants like Fontainebleau Las Vegas and Resorts World Las Vegas on the market equilibrium could offset benefits from room supply reductions.

Macroeconomic Factors: Unanticipated macroeconomic downturns or shifts in consumer spending habits could negatively impact the expected benefits of the room supply reduction, making the market more volatile than predicted.

Regulatory Changes: Potential changes in local or federal regulations affecting the hospitality and gaming industry could introduce new costs or operational challenges, impacting the anticipated earnings boost from the reduced room supply.

CZR Technical Analysis

Price Trend: The stock price has generally been in a downward trend since January, with notable lows in early April. Recent movements show a potential recovery with some sideways consolidation around the $37 level.

Moving Averages:

• The 50-day moving average (blue line) is trending downwards and currently sits just above the price at $37.21.
• The 200-day moving average (red line) is also trending downwards, positioned significantly above the current price at $42.74. The distance between these moving averages suggests the stock has been in a sustained downtrend.

Volume: There is a significant volume spike on some days, indicating strong trading activity. However, average volume seems relatively stable without extreme fluctuations.

Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI): The RSI is at 49.13, which is close to the midpoint of 50. This suggests that the stock is neither overbought nor oversold, indicating a neutral momentum.

On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV): The OBV is showing a downward trend, which often correlates with a declining price trend. This suggests that the selling volume has been stronger than the buying volume over this period. However, a significant surge in the OBV began in early June 2024, which could mark a major turnaround for the stock.

Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More: This indicator is at 0, indicating it is in an oversold condition. A value of 0 could suggest a potential rebound if buying pressure increases.

Average Directional IndexThe Average Directional Index (ADX) stands as a cornerstone indicator in the toolkit of technical traders, offering insights into the strength of market trends. Developed by Welles... More (ADX): The ADX is at 21.58, which is below the threshold of 25. This indicates a weak trend, meaning the stock price is not currently trending strongly in either direction.

Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More: The Chaikin Oscillator is at -937,476, indicating selling pressure. A negative value typically suggests that money is flowing out of the stock.

Time-Frame Signals:

• 3-month horizon: Hold. Given the neutral RSI, weak ADX, and oversold Stochastic RSI, the stock might consolidate or see some short-term recovery.
• 6-month horizon: Hold. The stock may continue to consolidate unless there is a significant change in trading volume or a positive catalyst.
• 12-month horizon: Sell. The sustained downward trend in moving averages and negative OBV suggest that the stock may continue to face downward pressure over the longer term.

Past performance is not an indication of future results. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

MGM Technical Analysis

Trend Analysis: The stock price shows a recent upward trend after a period of decline. The price is trading above the 50-day moving average (41.53) and near the 200-day moving average (41.93), indicating potential support around these levels.

Volume: Volume peaks can be observed, with a notable increase corresponding with upward price movements, indicating strong buying interest.

Relative Strength Index (RSI): The RSI is at 57.72, suggesting that the stock is neither overbought nor oversold. This neutral position indicates potential for further movement in either direction.

On Balance Volume (OBV): The OBV is steadily rising, which is a bullish signal, indicating that volume on up days is higher than on down days, suggesting accumulation by investors.

Stochastic RSI: The Stochastic RSI is at 0.502, indicating a neutral stance. This could suggest that the stock might continue to consolidate before a potential move.

Average Directional Index (ADX): The ADX is at 18.84, which is below 20, indicating a weak trend. This suggests that the market might be in a consolidation phase.

Chaikin Oscillator: The Chaikin Oscillator at 2,267,005 shows a positive trend, indicating accumulation and buying pressure.

Time-Frame Signals:

• 3-Month Horizon: Hold – The technical indicators suggest potential consolidation with no strong trend direction.
• 6-Month Horizon: Buy – Given the positive volume trends and moving average support, there’s potential for an upward trend to develop.
• 12-Month Horizon: Buy – The longer-term indicators such as OBV and moving averages suggest a potential for sustained upward movement.

Past performance is not an indication of future results. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead

The upcoming closures of Tropicana Las Vegas and The Mirage Hotel & Casino represent a significant near-term earnings catalyst for Las Vegas Strip casino operators. The resultant supply contraction is poised to benefit major players such as MGM Resorts International, Caesars Entertainment, and others by driving higher room rates and occupancy levels. Despite existing challenges, the Strip’s overall performance remains strong, and the anticipated positive impact on earnings could lead to improved investor sentiment as the year progresses.

Las Vegas Strip Casino Operators – FAQ