Casino Notes: Hopes of Stimulus From Beijing, Better September Gaming Revenues, And Visitor Arrival Growth With The Golden Week Holiday Lifts Macau Casino Stocks

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Las Vegas Sands, along with other casino operators Wynn Resorts and MGM Resorts, saw a sharp rally in the first week of October amid hopes of stimulus from Beijing and strong growth in tourist arrivals. Also, the decline in gross gaming revenues came in at 33% for September, lower than over 35% decline seen in the past few months. Casino stocks have seen massive decline this year amid continued uncertainties pertaining to Macau gaming market. October is expected to fare well for the casinos, given the rise in tourist arrivals during the Golden Week period. Looking at Nevada, August gaming revenues declined by a little over 1% amid continued volatility in baccarat. On that note we discuss below the developments related to casino companies over the last week or so.

Las Vegas Sands

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Las Vegas Sands’ (NYSE:LVS) stock is up over 15% so far in October amid hopes that China may provide supportive measures to bolster Macau’s economy. China is looking to provide stimulus amid fears of continued economic slowdown. Also, traders feel that Fed’s decision to increase interest rates is pushed further out and this has brought a relief rally in most of the equity markets globally. [1] Las Vegas Sands is poised to benefit from any growth in Macau as it has a number of casino properties, primarily targeting the mass-market, along with non-gaming avenues. We currently estimate Las Vegas Sands’ mass-market table games gross revenues of over $8 billion and EBITDA of around $2.5 billion by the end of our forecast period (towards 2022), representing more than 30% of the company-wide EBITDA. Usually the margins of mass-market gaming are much higher than that of VIP gaming as it does not involve junket operators. However, in our model, EBITDA margins refer to overall Macau gaming market.

  • 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.

Wynn Resorts

Wynn Resorts (NASDAQ:WYNN) stock surged over 20% in October for similar reasons. Now Wynn’s stock has seen massive decline in past one year (65%), of which, 30% fall was registered last month due to junket concerns (see – Wynn’s Stock Continues To Decline Amid Junket Concerns But Outlook Remains Positive). Wynn has established a premium casino image in Macau and it thus relied more on VIP and premium mass segment. Of late, Wynn has been expanding into mass-market segment, by shifting more tables from VIP to premium mass and this has been working out well for the company. There are reports of increased tourist arrivals in Macau in the Golden Week (Oct 1st to Oct 7th) and this will further boost the casino demand in the region. Visitors from China grew a healthy 22% in the first 2 days of holidays as compared to 4% growth seen in the prior year period. [2] Wynn currently has only one casino operational in Macau and it is developing another one in Cotai, which will be operational from next year and significantly enhance the company’s gaming capacity in the region. All these factors will likely bode well for the company.

  • 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 $65 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.

MGM Resorts

MGM Resorts (NYSE:MGM) also saw a 10% increase, so far in October. Now MGM has a significant exposure to the Las Vegas Strip, which saw gaming revenues decline for third straight month in August. [3] This weakness can primarily be attributed to lower baccarat wagers. Usually Chinese players prefer baccarat to other casino games and a decline in this segment points towards a slowdown in Chinese players at the Strip. Having said that, MGM derives most of its domestic profits from its hotel business, which has been trending well even at the Strip. Out in Macau, the company is also developing a new resort in Cotai and we believe that the new casino resort has a potential to generate $1 billion in annual EBITDA in the coming years. This could trigger a 10% upside to our price estimate for MGM Resorts (see – MGM’s Cotai Resort Has A Potential To Generate More Than $1 Billion In Annual EBITDA).

  • 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 $20 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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Notes:
  1. Chinese Stocks in Hong Kong Rise on Stimulus, U.S. Rate Outlook, Bloomberg, Oct 5, 2015 []
  2. Wynn Resorts (WYNN) Stock Advancing on Macau Tourism, Possible Stimulus, The Street, Oct 5, 2015 []
  3. Gaming revenue tumbles in Nevada, on Strip for third straight month, Las Vegas Review Journal, Sep 30, 2015 []