Gaming and leisure companies have seen some positive and some negative developments in the last few years. The lodging industry had a challenging 2016 due to economic uncertainty and geopolitical terrorism events that led to some softening in the near-term hotel environment. The terrorist attacks in Europe have hurt hotel stocks and they continue to impact travel to some degree.
In the United States, corporate travel softened in the last few months due to political uncertainty related to the elections. Analysts expect growth to soften in 2016 relative to last year; in 2017, analysts expected low single-digit growth, similar to what they have observed for 2016.
Analysts point to reasons beyond macroeconomic events that have contributed to a slowdown for travel-related names. They say typically a hotel cycle of positive RevPAR growth lasts around seven to nine years, and 2016 is the seventh year of positive RevPAR growth in this hotel cycle.
Analysts add that room supply is starting to increase. There was anemic room supply growth the last several years due to tougher credit availability, but now and into 2017 supply growth is expected to approach the long-term average of 2%.
For gaming names, analysts say Macau saw a negative couple of years due to the anticorruption crackdown in China, which caused many of the high-end gamers to avoid travel to Macau. Macau now wants to diversify its base business beyond gaming, and it’s trying to become a destination resort for families.
Analysts say there are signs that Macau has stabilized, with overnight visitation positive on a year-over-year basis, as well as gaming revenue for the last few months. Currently Macau is refurbishing its infrastructure, and as the Chinese middle class grows, analysts expect visitation to increase, and they say they are positive on names with Macau exposure.
Las Vegas has remained a solid market, analysts say. There hasn’t been new supply additions since 2009, and no new casinos or supply are expected until the middle of 2018. With no new supply and gradual economic growth, there has been about 90% hotel occupancy.
For movie theaters, analysts say 2015 was a record year for the box office, and they say 2016 has been keeping up better than many expected. Analysts say 2017 and 2018 look strong too given some continuing movie franchises. There’s also a tailwind from investments in improving the consumer experience.
The next couple of years are expected to be good for movie theaters, analysts say, but that’s already priced into the stocks. Valuations are currently the middle ground, and analysts are looking for stocks with catalysts to drive upside.
Full report available here.
Interview Highlights: Dan Wasiolek of Morningstar on Gaming and Leisure
November 25, 2016
Interview Highlights: Leo Kulp of RBC Capital Markets on Gaming and Leisure
November 25, 2016
Report Overview: Biotechnology and Pharmaceuticals
August 16, 2016
Report Overview: Data hosting centers and data storage
September 15, 2016
Report Overview: Entertainment, Toys and Games
October 11, 2016
