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Casino Stocks Surge on Impressive Macau Gambling Revenues

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Macau, which is the world’s largest gambling hub, has impressed investors with better-than-expected revenues for the second successive quarter. In fact, gambling revenues from the region have surged 16.6% in December. Following impressive Macau gambling revenues shares of companies such has MGM Resorts International (MGM - Free Report) , Melco Resorts & Entertainment Limited (MLCO - Free Report) , Wynn Resorts, Limited (WYNN - Free Report) and Las Vegas Sands Corp. (LVS - Free Report) jumped 3.8%, 5.7%, 5.6% and 4.1%, respectively. These companies generate majority of their revenues from the region.

Gambling revenues from Macau increased 16.6% to 26.47 billion patacas ($3.3 billion) in December. Gambling revenues were not only up for the 29th straight month but also registered the highest gain in four months. In 2018, gambling revenues from Macau increased 14% to 302.85 billion patacas ($37.6 billion).

A tough operating environment in Macau weighed on casino stocks from June 2014 to most part of 2016. In fact, the crackdown on corruption in China compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. As a result, footfall declined at the local casinos, leading to a persistent decrease in gaming revenues. A slowdown in China, tighter visa policies, political unrest and a smoking ban on mass market gaming floors compounded the woes. Nevertheless, Macau's gambling revenues marked a turnaround and have been rising since the second half of 2016, with new resorts attracting high rollers and leisure gamblers.

Can Casino Stocks Make a Turnaround in 2019?

The year 2018 was a tough one for Gaming industry. In a year’s time, the industry has declined 25%, wider than the S&P 500’s fall of 5.9%. In 2018, the casino operators in Macau were impacted by slowdown in China, and the trade war between Beijing and Washington. The trend is likely to continue in 2019 as well. Further, speculations over another crackdown on capital outflows by China have kept investors on the edge. Flagging China property price has impacted the high-end VIP segment.

However, legalization of sports betting outside Nevada has given the industry a new lease of life. The Supreme Court overturned the Professional and Amateur Sports Protection Act (“PASPA”) that banned sports betting outside Nevada. The scope for casino operators will grow as, illegally, the activity is valued at billions of dollars annually in the United States. Sports betting has been legalized in Delaware, Mississippi, New Jersey, New Mexico and West Virginia. Moreover, Pennsylvania and Rhode Island are also likely to tread the same path in the coming months.

Further, improving tourism in Las Vegas and rising demand for gaming and leisure will continue to drive the industry. Most of the companies are opting for alternative avenues to expand customer base and business.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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