CBRE has lowered its second-quarter earnings estimate for Golden Entertainment, due to strong competition in the Las Vegas locals’ market. However, the second half of the year could improve, as its Strip property benefits from the closure of the Tropicana and Mirage.

CBRE lowered its stock price target, while maintaining a Buy rating.

In a note to investors, analyst John DeCree said they’re adjusting the second-quarter EBITDA estimate to $41 million down from $46 million. The new estimate reflects elevated labor costs and the softness in the lower-tier customer segments that management discussed on its first-quarter earnings call.

“In addition, Golden and other operators called out heightened promotional activity in the locals market during the first quarter,” DeCree wrote. “We hoped this elevated promo activity would normalize in May, but it has persisted longer than expected and likely impacted much of the second quarter.”

While the fundamentals have been “adversely impacted by weakness” in the lower-tier customer segments, elevated promotional activity, and higher labor costs, DeCree sees “greener pastures ahead” with several potential earnings catalysts.

“Although fundamental trends are underwhelming as of now, some potential catalysts are emerge in the second half of the year to help earnings stabilize and potentially rebound,” DeCree said.

Golden acquired a few additional taverns in the second quarter that should contribute to growth in the second half of the year, with additional taverns planned in 2025, DeCree said.

Also, the market overall in Las Vegas will begin to amortize higher labor costs in the third quarter, normalizing operating-expense comparisons.

“Most importantly, the closure of The Tropicana Las Vegas in April and the scheduled closure of Mirage later this month could accelerate the occupancy recovery at the Strat and improve overall customer mix and margins,” DeCree said.

CBRE estimates the closure of the Tropicana in April and the Mirage next week would reduce room inventory on the Las Vegas Strip by 4.9% and the non-luxury room supply by 7.6%. This translates to more than 1.4 million annual displaced room nights, nearly one million of which are from the Mirage.

“With Caesars and MGM (properties) at or near full occupancy on the Strip, we see an opportunity for Golden to potentially pick up more than its fair share of displaced room nights,” DeCree said. “The Strat midweek occupancy is still 12 points below 2019 levels. And although weekend occupancy at the property hit 96% in the first quarter, there should be more upside from higher rates with fewer rooms available on the Strip going forward.”

As for other positives, Golden has significantly deleveraged the balance sheet through several non-core asset sales, allowing the company to accelerate the return of capital to shareholders, DeCree said.

The board recently instituted an ordinary annual dividend of $1 per share representing a 3.5% yield, which is more than twice the dividend yield of the S&P 500, DeCree said.

Golden also has about $90 million of availability under its share-repurchase authorization that CBRE expects it will fully utilize over the next 12 months, representing more than 10% of the current market cap.

“We’re maintaining our Buy rating, but lowering our price target to $40 from $47, which implies an 8x multiple of our fiscal year 2025 EBITDA estimate of $172 million,” DeCree said.

Golden closed Thursday at $29.74, just above its 52-week low of $28.20. Its 52-week high is $47.50.

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