Morgan Stanley analyst Stephen Grambling launched fresh coverage of a variety of gaming equities on Monday with Las Vegas Sands (NYSE: LVS) and Red Rock Resorts (NASDAQ: RRR) among the names earning praise.
Grambling initiated coverage of nine gaming stocks, but rated just three “overweight.” Red Rock and Sands are two of those three. His bullish view on LVS comes with a $49 price target, which implies upside of 16.66% from current levels. The stock is up 15.89% year-to-date, which is easily one of the best showings among all gaming stocks and one that’s made all the more impressive when accounting for the operator’s dominant position in Macau.
Currently, the Las Vegas Sands portfolio consists of six casino resorts — five in Macau and Marina Bay Sands in Singapore. That means the company has essentially no direct exposure to domestic macroeconomic concerns, such as persistently high inflation and rising interest rates. It does, however, make the stock sensitive to Macau headlines.
Still, Grambling said LVS offers compelling risk/reward and a strong balance sheet that could set the stage for new projects around the world.
Red Rock Best of Vegas Stocks
Grambling is also positive toward Red Rock Resorts, which he rates “overweight” with a $52 price target. That implies upside of 21% from current levels.
The Morgan Stanley analyst is bullish on Red Rock due to the operator’s emphasis on the Las Vegas Locals market, which has “some of the best demographic trends and highest barriers to entry of any gaming market.”
In addition to its namesake venue in Summerlin and Green Valley Ranch in Henderson, Red Rock operates multiple gaming properties under the Station brand throughout the Las Vegas area. The company also runs 10 Wildfire casinos, including seven in Henderson, according to its website.
While Grambling is enthusiastic about Red Rock, he’s less so regarding rival Boyd Gaming (NYSE: BYD). He rates that Las Vegas locals operator “underweight.”
Tepid on Las Vegas Strip Names
There remains lingering debate regarding whether or not the US economy is already in recession. There’s more consensus pointing to the possibility of an economic slowdown arriving at some point next year, and that would likely be a drag on gaming equities.
As such, Grambling has “equal weight” ratings on MGM Resorts International and Caesars Entertainment (NASDAQ: CZR) — the largest operators on the Las Vegas Strip. The Morgan Stanley analyst believes US gross gaming revenue (GGR) could decline next year as consumers adjust spending to reflect harsher economic realities.
The analyst also assigned “equal weight” ratings to Wynn Resorts (NASDAQ: WYNN), which generates the bulk of its sales from its two integrated resorts in Macau. He also rates Penn Entertainment (NASDAQ: PENN), the largest regional casino operator, as “equal weight.”
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