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Share prices of leading U.S based casino operators continued to fluctuate last week owing to varied comments by analysts on the Macau market. Some of the analysts even downgraded their ratings for the Macau gaming sector, given the choppy outlook.
 
We would like to remind investors that Macau gambling revenue was relatively weak for the month of May. As per media reports, Macau had a weak start this month too. Despite two weekends through Jun 8, 2014, weekly average daily run-rate was only $133.0 million, down 6.0% from the weekly average this year. Given the scenario, analysts at Morgan Stanley expect VIP revenue for the month of June to decline 7.0% year over year.  Macau casinos are likely to witness EBITDA decline in the second quarter, the first quarterly decline since the fourth quarter of 2009. Moreover, the start of the FIFA World Cup has cast a shadow over the performance of the casinos as people are expected to stay back at home to enjoy the games rather than go gambling. (Read More: Casino Stocks Down on Disappointing Macau Data).

Analysts at Wells Fargo expect a slide in revenues for the rest of the month. Though the firm is positive on Macau over the long-term, it expects the market to remain choppy owing to decelerating credit growth and a softer macro environment. Given China’s tighter credit markets, Deutsche Bank also lowered its expectation for 2014 gross gaming revenue (GGR) growth to 12.0% from 15.0%. Union Gaming Research also downgraded the Macau gaming sector on similar grounds.

Moreover, analysts at Morgan Stanley expect the third quarter to be impacted by measures to restrict illegal money transfers from mainland China to Macau casinos, which would be implemented from Jul 1, 2014. Meanwhile, fourth quarter results are likely to be impacted by the implementation of a smoking ban from October.

Now we come to the firms which continued to remain bullish on leading casino operators like Wynn Resorts Ltd. (WYNN - Analyst Report), Las Vegas Sands Corp. (LVS - Analyst Report), MGM Resorts International (MGM - Analyst Report) and Melco Crown Entertainment Limited (MPEL - Snapshot Report), because the downward trend in share price reversed for these stocks. A Credit Suisse analyst indicated that the recent sell-off in the stocks has been excessive and also pointed that the mass segment is still growing strongly with 36.0% growth so far this year. The firm also stated that investor apprehensions of VIP revenues dropping as much as 25.0%, similar to the first half of 2009 when revenues plummeted due to the financial crisis, have led to the share price declines. But the firm does not foresee such a situation and hence termed it as unrealistic. It stated that over the past few months, average daily revenue of Macau casinos has actually been steady.

Similar to Credit Suisse, CitiGroup also believes that the Macau stocks are oversold. Also, the firm believes that the smoking ban will likely lead to a meager 2.0% decline in GGR as players in the Macau casinos are not social gamblers but serious players. Therefore, they would not stop visiting Macau just because they will not be allowed to smoke at the tables. The firm believes that the FIFA World Cup will not be a dampener as most games begin in the middle of the night in China. Also, it believes that the crackdown on UnionPay cards will not stop people from coming as they will find a way to bring their funds into the casinos.

Other private firms whose share price fluctuated on these comments include Galaxy Entertainment Group Ltd and SJM Holdings Limited. (Read last to last week’s developments: Gambling Stocks Roundup for June 9, 2014)

Recap of the Week’s Other Important Stories:

1.    MGM Resorts International received a license from Massachusetts Gaming Commission to operate a resort casino in Downtown Springfield, the Commonwealth of Massachusetts.  This project worth more than $800.0 million is the first casino to get a license in the Commonwealth.  The company succeeded in getting the approval after two years of hearings and background investigations.

2.    As per media reports, the Government of Macau plans to restrict the use of China UnionPay Co.'s debit cards at casinos. It has ordered jewelry stores and pawnshops operating on casino floors to remove their UnionPay card terminals by Jul 1, 2014. This would further tighten VIP liquidity, as it would lead to less cash in hand for gamblers. China has already come down hard on the use of UnionPay hand-held card swipers within casino resorts with funds being shifted illegally from mainland China to Macau. (Read More: Casino Stocks Tumble on Macau Crackdown Fears).

3.    The proceedings to legalize gambling in China have hit a roadblock.  As per media reports, an opposition politician in Japan tendered a few demands to the ruling party legislatives who are in favor of legalizing casino gambling. This has delayed parliamentary debate on the proposal, thereby shifting it to next week at the earliest. In one other update, legislators who previously indicated a 90.0% chance of the bill being passed in the current summer session, which is nearing its end, declared that the chance of passing the bill is only 50.0%. (Read More: Gambling Stock Roundup: Wynn Resorts, MGM & Melco Crown Eye Japan).

4.    A subsidiary of Boyd Gaming Corp. (BYD - Snapshot Report) won a property tax appeal versus Atlantic City, N.J. and is now entitled to receive a refund of $88.0 million. The property tax appeal was filed by Boyd Gaming related to the assessment of certain properties for 2011-2014.

5.    Effective immediately, Pinnacle Entertainment Inc. (PNK - Snapshot Report) completed the exchange of senior notes worth $850.0 million, carrying an exchange rate of 6.375% senior notes due 2021, against an equal principal amount of its outstanding 6.375% Senior Notes due 2021.

Performance

Despite the fluctuations, shares of leading U.S. based casino companies gained over the last week.  Among the four casino operators which generate majority of their revenues from Macau, Melco Crown was the biggest gainer with an 8.40% gain, followed by MGM resorts, Las Vegas Sands Corp., and WYNN Resorts. These companies gained on expansion efforts and positive analysis provided by a couple of firms. However, overall, Boyd Gaming was the biggest gainer (up 8.65%), followed by Caesars Acquisition Company (CACQ). However, Caesars Entertainment Corporation lost 1.15%.

Over the last 6 months, MGM Resorts and WYNN Resorts have gained 15.71% and 10.81%, respectively, while Melco Crown, Caesars Entertainment, Caesars Acquisition Company, Las Vegas Sands and Boyd Gaming experienced a decline of 17.80%, 9.42%, 5.43%, 3.87% and 0.36%, respectively.
 

Company

Last Week

Last 6 months

WYNN

1.01%

10.81%

LVS

1.28%

-3.87%

MGM

1.51%

15.71%

MPEL

8.40%

-17.80%

CACQ

5.92%

-5.43%

BYD

8.65%

-0.36%

CZR

-1.15%

-9.42%





 

 

 

 

 

 

 

 

 

 

 

What’s Next in the Gambling World?

Isle of Capri Casinos, Inc., which has an Earnings ESP of 0.00%, is set to report its fiscal fourth quarter 2014 results on Jun 17, 2014. We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect such movement in the coming days as well.

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