Casino Notes: Our Revised Price Estimates For Casino Stocks Amid Continued Decline In Macau Gaming And Concerns Over Slower Growth In China

Casino stocks plunged in Tuesdays trading session this week after the Macau gaming data for August was released. Gross gaming revenues slipped 36% for the month, marking 15th straight month of decline. Back in the U.S., the Nevada Gaming Control Board recently released data for July gaming revenues, which were down a little under 1% statewide and 2% at the Strip. ^[1] However, Tuesdays fall can also be attributed to weakness in global equity markets, owing to concerns over slower growth in China. Later in the week, casino stocks saw some recovery. On that note, we discuss below some of the key developments in the casino industry over the past week or so and our revised estimates for casino stocks amid the current macro-economic environment and volatility.

Wynn Resorts

Wynn Resorts (NASDAQ:WYNN) stock was down over 5% in Tuesday’s trading session and is down over 50% in year to date. We have recently revised our price estimate for Wynn to $118, owing to recent developments, which suggest that recovery in Macau is likely to be delayed. The devaluation of Yuan has made betting more expensive for Chinese players. Furthermore, there are concerns over decelerating Chinese economy, which doesn’t bode well for casinos, given their high reliance on Chinese players. Having said that, Wynn should see some growth in 2016, reflecting benefits of its new Cotai resort, along with a favorable comparison for gross gaming revenues. Macau gross gaming revenues have been in the range of $17 billion to $20 billion for most of the year and if this stability persists in the coming months, the comparison will be favorable starting in 2016 (see – Our Revised Price Estimate of $118 For Wynn Resorts).

• Trefis has a $118 price estimate for Wynn Resorts’ shares, translating into a $12 billion market cap. This is much above the market price of around $71 seen over the week.
• We estimate the company’s 2015 revenues to be around $4.60 billion for earnings per share of $3.91, as compared to $3.31, according to Reuters.

Las Vegas Sands

Las Vegas Sands’ (NYSE:LVS) stock was down 2% for similar reasons. Also, a new pact between Macau and China’s central bank to fight money laundering could further weigh on Macau gaming in the near term. Macau’s GDP, which is heavily dependent on casinos, also contracted over 25% in Q2. All these factors suggest that the much-awaited recovery in Macau casino market no longer seems imminent. Accordingly, we have also revised our price estimate for Las Vegas Sands to from $64 to $56 (see – Las Vegas Sands Price Estimate Revised From $64 to $56 Amid Decelerating Chinese Economy & Currency Woes).

Separately, the recent slowdown in Macau gaming has also weighed on the average daily rates (ADRs) and occupancy levels of hotels in the region, evident from casino operators’ earnings releases in the past couple of quarters. We now estimate Las Vegas Sands’ ADR as well as the occupancy rate to take a mid-single-digit hit in 2015.  However, we believe it will recover thereafter, led by an expected rebound in gaming, along with continued growth in Mainland China visitors to Macau, and Las Vegas Sands’ increased capacity with the opening of The Parisian (see – What Factors Can Drive Growth For Las Vegas Sands’ Macau Hotel Operations?).

• Trefis has a $56 price estimate for Las Vegas Sands’ shares, translating into a $45 billion market cap. This is around 25% above the market price of around $45 seen over the week.
• We estimate the company’s 2015 gross revenues to be around $13 billion for earnings per share of $2.73, as compared to $2.61, according to Reuters.

MGM Resorts

MGM Resorts (NYSE:MGM) also saw a 3% decrease in Tuesday’s trading session followed by a mild recovery during the week. The recent news from Nevada was also not great, especially on baccarat revenues, which plunged 21% at the Strip. However, overall gaming revenues were down only 2%. ^[1] We continue to believe that MGM is likely to see near term growth from its U.S. hotel operations while its new Cotai property will drive the long-term growth. We maintain our $27 price estimate for MGM Resorts, primarily reflecting steady growth in the U.S. operations and a near term fragile environment in Macau (see – Domestic Hotel And Macau Casino Operations Will Drive MGM’s Future Growth).

• Trefis has a $26 price estimate for MGM Resorts’ shares, translating into a $15 billion market cap. This is around 30% above the market price of around $30 seen over the week.
• We estimate the company’s 2015 gross revenues to be around $9.6 billion for earnings per share of $0.58, as compared to $0.53, according to Reuters.

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1. Minus baccarat, July was positive for Strip revenue, Las Vegas Review Journal, Aug 28, 2015 [↩] [↩]