Inflation, Interest Rates Weighing on Gaming Industry M&A, Says Analyst
Entering this year, it was widely expected that the Federal soldier Reserve would pare down interest group rates from 20-year highs, potentially unleashing a wafture of mergers and acquisitions activity in the cassino gaming industry, but that scenario hasn’t materialized.
Following a string up of stubbornly heights readings of the Consumer Leontyne Price Index (CPI) to start 2024, expectations that the Fed could depress rates anywhere from triplet to half-dozen times this twelvemonth are all but erased and some market observers are speculating it’s possible the central bank won’t tighten borrowing costs until next year. That could live a drag on on gaming manufacture consolidation, according to Truist Securities analyst Barry Jonas.
Lower interestingness could live a catalyst for increased mergers and acquisitions and more sale-leaseback activity — transactions in which cassino operators monetize real land holdings spell maintaining in operation(p) command of the venues.
This thesis is likely delayed while the Fed attempts to combat obstinate inflation,” wrote Jonas inward a young write up to clients.
Year-to-date, there has been some integration inwards the gaming industry with the $6.2 billion combination of International Game Technology’s (NYSE: IGT) planetary gaming and PlayDigital units with Everi (NYSE: EVRI) ranking as I of the largest deals to date. However, there’s been goose egg of tone inward terms of cassino operator marriages or those companies buying and marketing single properties.
Lots of Gaming Stocks Have Value Appeal
While the higher stake rates caused past relentless inflation hold prompted gaming companies to reduce and refinance debt — moves applauded by analysts and investors — those scenarios are weighing on share prices.
Whether it is cassino equities, shares of gaming twist makers, or existent demesne investment funds trusts (REITs) that own gaming properties, those stocks in combine are lagging the broader marketplace this year. Additionally, dwindling rate cutting off expectations are sapping a needed accelerator from the group.
“But absent M&A and predictable organic growth, many of our names are stuck inward note value land,” added Jonas.
On Tuesday, the psychoanalyst lowered price targets on quatern gaming stocks, including Caesars Entertainment (NASDAQ: CZR), but he did advance terms forecasts on Bally’s (NYSE: BALY) and Red River John Rock Resorts (NASDAQ: RRR).
Higher for Longer Drag on Gaming REITs
Real estate is ace of the most interest-rate raw sectors — a fact proven past a year-to-date wane of 8.3% past the S&P Real Estate Select Sector Index. Conversely, the S&P 500 is upward 6.7% since the go of the year.
Expectations that “higher for longer” is the Fed’s near-term operating procedure is plaguing shares of cassino landlords. Gaming and Leisure Properties (NASDAQ: GLPI) is cancelled 12% year-to-date spell Caesars Palace owner VICI Properties (NYSE: VICI) is cancelled 10.82%.
Jonas noted that the stream environs mightiness non follow tributary to gaming REITs executing large-scale transactions, but that scenario could vary if involvement rates stabilize and lucidity emerges as to when the Fed will tailor borrowing costs.
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