Despite firm third-quarter earnings, Station Casinos’ stock price has dropped 22 percent since the latest earnings call by management on November 8. Deutsche Bank analyst Carlo Santarelli sought to get to the bottom of that in a January 13 investor note.
He found the cause to be primarily “somewhat cautious 3Q call commentary,” stemming from management hesitation around upcoming property renovations and their resultant disruption of business.
Santarelli also blamed “flat optics” in the fourth quarter of 2024 and worries about the performance of Station’s sportsbooks, following a $7.6 million cash-flow hit in October. (Nationwide, sportsbook brands got pasted in October and December by bettor-favorable game outcomes.)
“In short, we believe operating performance has been stronger than expected and our updated forecasts are achievable, if not beatable.” He viewed Station’s present cash-flow valuations “as being healthily below historical levels, and, as such, with a stable fundamental backdrop, we see upside from current levels.”
Although Station’s customer base and their gambling habits were said to be stable, management faced tough comparisons with late 2023 when it came to selling blocks of rooms to groups. In view of this, Station led analysts to expect $219 million or less in fourth-quarter cash flow. A trio of development projects this year are expected to sap another $22 million from cash flow.
Santarelli felt that poor sportsbook performance was occluding casino business tracking up by five percent or more. “While December is sure to be hampered by sportsbook performance, much like October, while also lapping the Durango opening,” he predicted that Station would close out the fourth quarter with gambling revenue up as much as three percent, plus a gain in market share.
Table winnings for Station have been robust, climbing 11.7 percent, while slot play increased 6.3 percent through November. Lower slot holds, Santarelli believed, were an illusion created by Nevada’s quirk of not reporting weekend slot action if a month ends on a Saturday or Sunday, waiting until hoppers are dropped on Monday.
“Thus, despite the soft headline data, ahead of the Durango anniversary and what are likely to be weak reported table game results in December, due to low sports hold, we believe [gross gaming revenue] growth remains healthy,” Santarelli summarized. His forecast of fourth-quarter cash flow came to $199.6 million, higher than Wall Street’s consensus.
