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Analyst Blog

So far, approximately 44% of the U.S-based casino companies have posted their quarterly results. These include Las Vegas Sands Corp. (LVS - Analyst Report), Penn National Gaming Inc. (PENN - Snapshot Report), Pinnacle Entertainment Inc. (PNK - Snapshot Report), Monarch Casino & Resort Inc. (MCRI - Snapshot Report), Wynn Resorts Ltd. (WYNN - Analyst Report), Boyd Gaming Corporation (BYD - Snapshot Report) and Churchill Downs Inc. (CHDN - Snapshot Report).

Macau Operations

There is trouble in paradise for Las Vegas Sands and WYNN Resorts as is evident from Macau’s declining revenues. Gross gaming revenue (‘GGR’) in Macau for the month of July declined 3.6% – the second monthly decline since 2009. Earlier, GGR declined 3.7% to $3.4 billion in June. The decline was due to the football World Cup that diverted some bettors and tourists away from the world’s largest gambling hub.

In May, GGR had increased only 9.3%, the lowest since February, and compared unfavorably with 10.6% increase in April. Moreover, the number reportedly fell short of analysts’ expectation of 13.0% to 15.0% growth.

The announcement of a crackdown followed by potential for tighter restrictions on visas and slowing credit growth rate concerns in China have kept VIP gamblers at bay, thereby impacting revenues. Going forward, the impending smoking ban in casinos from October could worsen the situation.

Though analysts are concerned over the near-term and expect the environment to remain choppy till the fourth quarter, they believe that Macau has good prospects over the long-term.

Las Vegas Sands posted weak results on Jul 16, missing the Zacks Consensus Estimate on both counts. On the other hand, Wynn Resorts posted mixed results last week with earnings beating the Zacks Consensus Estimate and revenues missing the same. However, in both cases, better-than-expected performance at Las Vegas offset the negatives faced in Macau.

Domestic Market Operations

Las Vegas performed relatively better than Macau but not all companies operating in the region benefitted from the performance. In fact, the Nevada Gaming Control Board reported June gambling revenues of $906.9 million, up 14.4% year over year. This also compared favorably with growth of 8.1% for the month of May and a decline of 0.3% in April.

However, Nevada-based casino companies like Pinnacle Entertainment, Monarch Casino & Resort and Boyd Gaming posted disappointing second quarter 2014 results possibly due to stiff competition and a casual play environment. Meanwhile, Churchill Downs also posted weak results due to continued weakness in the regional economies of Mississippi and Louisiana.

We would also like to draw investor attention towards Atlantic City -- once the gambling hub of the East Coast. The region is facing stiff competition after gambling was legalized in neighboring states including Pennsylvania and New York. As a result, several casino operators decided to withdraw their operations from the market. (Read: Gambling Stock Roundup: Las Vegas Sands Disappoints, Penn National and MGM Resorts in Focus)

In one other development, Caesars Entertainment Corporation (CZR - Snapshot Report) has taken additional steps towards positioning its subsidiary Caesars Entertainment Operating Company, Inc. (CEOC) for a stock listing and significant deleveraging. (Read last to last week developments: Gambling Stock Round up for Jul 28, 2014)

Recap of the Week’s Most Important Stories:

1.    Total gross gaming revenue declined 3.6% in July to $28.4 billion, according to Macau’s Gaming Inspection and Coordination Bureau. This was the second successive month of decline after a 3.7% fall in June. The revenue decline reflects the effect of the World cup that began on Jul 12 and ended on Jul 13, 2014.

Share prices of leading U.S-based casino operators Wynn Resorts, Las Vegas Sands, MGM Resorts International and Melco Crown Entertainment Limited who earn a majority of their revenues from Macau declined in response. (Read More: Macau Gaming Revenues Decline for the Second Straight Month)

2.    Wynn Resorts posted mixed second quarter 2014 results. Adjusted earnings of $2.11 in the second quarter grew 40% from the year-ago quarter and comfortably beat the Zacks Consensus Estimate of $2.08 by 1.4%. The upside reflects year-over-year improvement in revenues and growth in the Las Vegas market.

Net revenue increased 6% year over year to nearly $1.41 billion driven by an increase in revenues from Las Vegas operations. However, it missed the Zacks Consensus Estimate of $1.44 billion by 1.9% possibly due to a sluggish Macau market. (Read More: Wynn Resorts (WYNN - Analyst Report) Beats Q2 Earnings on Las Vegas Growth)

3.    Churchill Downs’ second quarter 2014 earnings from continuing operations of $3.21 per share missed the Zacks Consensus Estimate of $3.40 by 5.6%, possibly due to higher costs and expenses. However, earnings increased 14.2% year over year driven by an increase in the top line and lower share count.

Net revenue of $303.7 million also missed the Zacks Consensus Estimate of $323.0 million by 6%, possibly due the negative impacts of continued regional economic weaknesses in Mississippi and Louisiana. However, it increased 7% year over year driven by the acquisition of Oxford Casino in Jul 2013. (Read More:  Read More:  Churchill Downs (CHDN - Snapshot Report) Misses Q2 Earnings & Revenues, Up Y/Y)

4.    Boyd Gaming posted disappointing second quarter 2014 results. Adjusted earnings of 5 cents missed the Zacks Consensus Estimate of 7 cents due to lower-than-expected revenues. However, it was better than a breakeven reported in the year-ago quarter due to a decline in total costs and expenses. Net revenue of $722.5 million also missed the consensus mark of $737.0 million by 2% and declined 2.2% year over year. The downside reflects a decline in Midwest and South, Las Vegas Locals and Downtown segments. Adjusted EBITDA was $160.6 million, marginally up year over year.

Given the current scenario, the company lowered its adjusted EBITDA guidance to a range of $580 to 600 million compared to the previous expectation of $600 to 620 million. The guidance reflects weakness in casual play games and a tough operating environment. Share price plummeted 11.4% in response.

5.    Last week, Caesars Entertainment took additional steps towards positioning its subsidiary Caesars Entertainment Operating Company, Inc. (CEOC) for a stock listing and significant deleveraging. Subject to regulatory approval, the company appointed John Payne as Chief Executive Officer, Mary Elizabeth Higgins as Chief Financial Officer and Tim Lambert as General Counsel of CEOC. The company had earlier appointed two independent directors to the CEOC board recently.

Prior to these appointments, the company had completed a $1.75 billion first lien debt offering and associated redemption of existing 2015 maturities as well as a pay down of $800 million of bank facilities maturing in 2016; sold Caesars Entertainment stake of 5% of CEOC's equity to institutional investors, made asset sales and amended CEOC's credit facility. These initiatives were announced in May this year to aid independent stock listing and significant de-leveraging of CEOC (Read More: Caesars Entertainment Soars on Funding Plan)

Performance

The last week proved to be unfavorable for most casino operators due to sluggish quarterly results and disappointing Macau results. Boyd Gaming and Caesars Entertainment were the biggest losers, down 11.4% and 8.4%, respectively. However, Las Vegas Sands was the only gainer with 2.7% increase in its share price.

Over the last six months, only MGM Resorts International and Boyd Gaming have gained 8.3% and 4.2%, respectively. Meanwhile, all other stocks declined over the same time frame with Caesars Entertainment and Melco Crown Entertainment Limited declining the most, 24% and 18.9%, respectively.
 

Company

Last Week

Last 6 months

WYNN

2.72%

-4.84%

LVS

-0.57%

-3.19%

MGM

-0.49%

8.33%

MPEL

-1.52%

-18.85%

CACQ

-0.35%

-12.93%

BYD

-11.36%

4.17%

CZR

-8.43%

-24.03%














 

 

 

 

 

 

What’s Next in the Gambling World?

Churchill Downs’ Vice President of Finance and Treasurer will participate in the 3rd Annual Credit Suisse Gaming, Lodging, Leisure and Restaurants Conference in New York on Aug 6, 2014.

MGM Resorts with an Earnings ESP of 41.67% and a Zacks Rank #3 (Hold) is set to release its second quarter 2014 results on Aug 5, 2014.

Melco Crown with an Earnings ESP of -10.81% and a Zacks Rank #4 (Sell) and Full House Resorts Inc. with an Earnings ESP of 0.00% and a Zacks Rank #4 will report second quarter results on Aug 7, 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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