By Senad Karaahmetovic
KeyBanc analyst Brett Andress downgraded as many as five leisure stocks today in response to the more challenging macro environment.
Shares of Caesars Entertainment (NASDAQ:CZR), Hasbro (NASDAQ:HAS), SeaWorld Entertainment (NYSE:SEAS), Vista Outdoor (NYSE:VSTO), and Yeti Holdings (NYSE:YETI) are downgraded to Sector Weight from Overweight.
In the gaming sector, Andress cut CZR due to macro headwinds, high leverage, and commensurate FCF burden vs. peers
“We’re not saying a 20%+ GFC type drawdown is going to happen in Strip GGR, but if it does, we think CZR has the most relative downside potential across our gaming coverage, primarily owing to its leverage profile ($13.0B net/$22.5B lease-adjusted as of 1Q22) and commensurate FCF burden, as GGR sustaining at/around current levels feels pretty critical to de-leveraging bull cases. A Vegas asset sale will help (it’s factored in our scenario below), but in this tape, the ships might have sailed on Strip marks,” the analyst said in a client note.
As far as Hasbro is concerned, the analyst has a “waning conviction around MTG's LT algo”.
“We see cracks emerging in the MTG algo: 1) the velocity of launches since the pandemic appears to be overwhelming the channel, dated product is popping up in sub-optimal places; 2) exhaustion is setting in among MTG’s core demo via launch timing (too many, too close in proximity); 3) our MTG online KFL is ~back to 2019 levels; each launch from mid-2021 onward has been weaker than the last. All of which, we think, likely prompts a reset (slowdown) in the cadence in favor of LT growth.”