While gaming revenues in Las Vegas are expected to moderate, strength in hospitality, food, and beverage spending will continue to boost growth for Las Vegas casinos.

Cameron Belt, chief economist of the economics team and research director at RCG Economics, LLC, told Jefferies Equities Research analyst David Katz that his outlook on Las Vegas in both the short and long term is positive, though noting “an appropriate amount” of caution. Katz himself recently wrote that concerns of Las Vegas peaking are false.

“It’s important to note that Las Vegas is no longer a gaming-first market. With large-scale events on the Strip, investments in downtown, and the addition of sports teams, the city should continue to attract a broader consumer base than before COVID,” Katz cited Belt in a note to investors.

In the near term, the room supply on the Strip is a net positive. The Tropicana’s closure in April and the Mirage’s in mid-July are taking about 4,500 rooms off the market for lower-end and more value-driven consumers at a time when they’re a bit more strained, Katz said.

In contrast, rooms were added on the higher end of the spectrum at the Fontainebleau Las Vegas in late 2023.

Strip visitation is much broader post-COVID, as Vegas has redefined itself and improved non-gaming amenities, Katz said. A higher share of the international visitor base is coming from Mexico, along with Canada boosted by NHL hockey.

“From a demographic perspective, visitation from Millennials is peaking as Gen Z is increasing,” Katz wrote. “While the more youthful dynamic is not impacting overall attendance, Gen Z tends to be more budget-constrained and spends less than Millennials.”

With the event calendar and demand environment remaining positive, Jefferies continues to believe the set-up supports their top picks Red Rock Resorts and MGM Resorts International.

“We disagree with the view that Las Vegas earnings have peaked, with balanced, complex comps near term and substantial investment increasing visitation and growth longer term,” Katz said. “The Las Vegas market set-up supports our top picks with Red Rock and MGM both positioned to outperform in the region.”

Katz noted that Belt talked about few potential challenges that can impact the city’s overall economy and potentially gaming, including construction impacting traffic and higher labor costs for operators with new union contracts.

“The near-term debate over whether earnings have peaked is complex,” Katz said. “While revenue growth is moderating and labor costs are rising, we believe comps are easing for MGM and Caesars and Strip supply is exiting the market. Locals’ markets should normalize and adjust to new supply.”

Despite national headlines of the dropping levels at Lake Mead, water scarcity remains a concern, though it’s manageable, given that per-capita usage is down and a large amount of the water is recycled. In addition, there is potential for other states to become as advanced as Nevada in saving water, Katz said in citing Belt.

While some progress has been made on the secondary airport and ground has been broken for the Brightline West rail project connecting Las Vegas to southern California, Katz said there are issues for both rail and the airport in terms of timing and bringing more tourists to the region.

“(Belt) noted that Brightline could address capacity pressures, but the high cost and transportation to the train call into question the customer profile,” Katz said. “Additionally, as it relates to the (new) airport, he believes the project is real, but timing is far from certain.”

The lack of housing and its high cost “remain a pressure point for population growth,” which fuels growth at locals’ casinos, Katz related. Further, while Vegas has a lot of non-Strip land, it is not developable, creating a land shortage for both commercial and residential development.

In Jefferies’s view, Las Vegas offers gaming companies the opportunity for consistent year-over-year growth in the foreseeable future, Katz said.

The coordinated effort of government officials and corporations to increase visitation to the region provides companies with a growing consumer base. Year to date, domestic travel to Las Vegas is 1.7% higher than 2023 and international travel is rebounding, Katz said.

The labor market in Nevada is trending positively, growing 2.2 times faster than the U.S. average. Additionally, the population in Clark County is expected to continue growing, with those above retirement age outnumbering the total population by 5.6 times over the next five years, he said.

Despite the concerns over water, construction, and the new airport, they remain confident that Las Vegas’s population growth of 1.4% and a growing sports and events calendar position the market as the most productive in the industry, with growth opportunities not broadly available globally.

“Put simply, we think the concerns that Las Vegas has peaked are overdone.”

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