Interest rate cuts from the Federal Reserve Board are expected to begin soon, which could have a significant impact on various sectors, including gaming companies. While the exact number and size of the rate cuts are still up for debate, it is likely that these cuts will benefit stocks of gaming companies, particularly casino operators who have historically relied on debt to fund their growth.
Despite the fact that many casino companies have already taken steps to clean up their balance sheets by reducing debt ratios and converting variable interest debt to fixed rates, there are still potential benefits to be had from lower interest rates. For companies with variable rate debt, lower rates could lead to increased free cash flow.
Deutsche Bank equity analyst Carlo Santarelli has identified the top beneficiaries among companies he covers in terms of increased discretionary free cash flow from lower rates. These companies include Golden Entertainment, Caesars, Light & Wonder, Red Rock Resorts, and PENN Entertainment.
In addition to increased free cash flow, lower interest rates could also make borrowing more affordable for property acquisitions, expansions, and renovations, as well as investments in new technology and products. This could encourage growth within the gaming industry and lead to increased stock values for companies involved in these activities.
Lower interest rates may also have an impact on mergers and acquisitions within the gaming industry. With more affordable financing options available, there may be an increase in strategic acquisitions, particularly in segments like sports betting and iGaming. IPOs could also become more feasible for private companies waiting for better pricing conditions.
Overall, lower interest rates are expected to have a positive impact on the gaming industry, leading to increased free cash flow, growth opportunities, and potential consolidation through mergers and acquisitions. Investors may see higher stock valuations and increased interest in gaming stocks as companies become more attractive to buyers. This could be a period where gaming stocks rise closer to their true values, offering potential benefits to both investors and industry stakeholders.
