Golden Entertainment Sees Buybacks Preferable to Nevada Acquisitions

Posted on: May 9, 2024, 05:23h. 

Last updated on: May 10, 2024, 09:16h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Golden Entertainment (NASDAQ: GDEN) dramatically reduced debt while announcing its first-ever quarterly dividend. Such efforts, including share buybacks, could be the casino operator’s preferred avenues for returning capital to shareholders rather than acquiring gaming venues in Nevada.

Golden Entertainment
Golden Entertainment’s Arizona Charlie’s Casino. The operator prefers share buybacks over Nevada acquisitions. (Image: Las Vegas Review-Journal)

Last month, the Strat operator deployed $287 million to redeem outstanding senior notes, slashing its outstanding liabilities and leaving it with about $100 million in cash on hand and access to a $240 million revolving credit facility. That speaks to a strong liquidity position, but it appears unlikely the gaming company will pursue acquisitions in its home state over the near term.

At this time, it’s difficult to find an opportunity to acquire Nevada-based casinos with owned real estate, which would be more accretive than acquiring our own stock, which we intend to do over the remainder of the year with our current repurchase authorization,” said Golden CFO and President Charles Protell on the company’s first-quarter earnings conference call with analysts.

The Las Vegas-based operator has been rumored to potentially be acquisitive, particularly following its $260 million sale of the Rocky Gap Casino Resort in Flintstone, Md. last year. That deal made Golden a Nevada-only gaming company.

Golden Taking Pragmatic Approach to Acquisitions

The current macroeconomic environment, one hindered by persistent inflation and the highest interest rates in two decades, is seen pressuring gaming industry consolidation. Protell acknowledged as much in his remarks to analysts.

“While we continue to review actionable strategic opportunities, the current market environment and macro backdrop has made it less conducive to M&A for us,” he added.

Put simply, if Golden were to borrow capital to finance an acquisition, it’d be doing so at higher interest rates than it would have been subject to a few years ago. Additionally, the operator’s preference for buying gaming venues with owned real estate could be lauded by investors because should Golden strike such a deal, it would avoid taking on a new long-term obligation to a landlord.

To those ends, the number of Las Vegas locals’ casinos that feature owned real estate is high, but the bulk are controlled by Golden rivals Boyd Gaming (NYSE: BYD) and Red Rock Resorts (NASDAQ: RRR), neither of which have signaled they’re looking to sell Sin City properties. Red Rock never sells casinos or land to other gaming companies.

Bottom line: if Golden is looking for Las Vegas acquisitions, the current pickings are slim.

Golden Approach Could Be Validated

Outside of Las Vegas, Golden is the dominant operator in Pahrump and vies with Caesars Entertainment (NASDAQ: CZR) for the same status in Laughlin. That could imply the operator doesn’t need to go shopping in those markets. Additionally, the first-quarter earnings call represents yet another on which the operator didn’t comment on the fate of the Colorado Belle, its shuttered venue in Laughlin.

Golden currently does not own any casino hotels in the Reno/Lake Tahoe market and while some analysts have previously suggested that region makes sense for the operator to consider deals, Golden itself hasn’t said that market is on its radar.

Even without deal-making, the case for Golden stock could be supported by buybacks, debt reduction, and dividends — the three pillars of shareholder yield.