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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Analyst sees no 'silver bullets' to Macau turnaround

19 May 2015

A Wall Street investment house downgraded the prospects for the three Nevada-based casino operators with expanding developments in the cratering Macau gaming market.

In a research report to investors Monday, Goldman Sachs gaming analyst Steven Kent said Macau’s downturn, which has seen 11 straight monthly gaming revenue declines, was “much more than everybody feared, and we do not see a turnaround for months, possibly quarters.”

The analyst downgraded his stock price projections for Wynn Resorts Ltd., Las Vegas Sands Corp. and MGM Resorts International.

“It is increasingly clear to us that there are no silver bullets that are going to change the weak revenue trajectory,” Kent wrote.

Macau gaming revenue has seen double-digit declines since September, including a record 49 percent drop in February. For the first four months of 2015, gaming revenue is down 37.1 percent.

Kent said Las Vegas Sands is the company most affected by Macau. More than 65 percent of the company’s quarterly revenue comes from its four Macau developments — Sands Macao, The Venetian Macao Resort-Hotel, Four Seasons Macau and the Sands Cotai Central complex.

“Las Vegas Sands’ footprint in Macau has gotten so big that we expect its results will become a ‘proxy’ for the market,” Kent wrote. “We believe it will be difficult for the company to see a reversal in its fortunes without the broader Macau market also showing a turnaround.”

Kent said he still “thinks highly” of Las Vegas Sands from an operational and market position.

Goldman Sachs cut its stock price target for Las Vegas Sands to $52 per share from $60 per share. Wynn Resorts was sliced to $145 per share from $154 per share. Meanwhile, MGM Resorts was only reduced to $21 per share from $22 per share, primarily because of the company’s larger presence in Las Vegas.

The three companies are building multibillion dollar resorts on Macau’s Cotai Strip region that are expected to start opening in 2016.

Kent said Wynn Resorts’ $4 billion Wynn Palace will be the first to open in the first half of the year and could create “a positive catalyst” for the company that could double cash flow.

A government crackdown on corruption since last year has slowed high-end gaming play in Macau, which has led to much of the downturn. Much of the focus was on junket operators who bring bring spending customers into Macau casinos.

In an interview last month, Wynn Resorts Chairman Steve Wynn said his company’s “nine-to-10 junket operators” have all been cleared by Hong Kong law enforcement authorities.

“That type of investigation makes regulators happy and it makes me happy,” Wynn said.

Macau casinos reported the market’s first-ever annual decline in 2014, when gaming revenue fell 2.6 percent from 2013’s all-time single-year record of $45.2 billion.

Analysts are predicting casino revenue could top out at between $30 billion and $35 billion when 2015 is in the books.

Kent wrote that he wished the investment house had downgraded the market sooner.

“We stuck with our positive ratings, because we thought that at some point Macau would start to bottom out as the Chinese government’s anti-corruption program ran its course,” Kent said. “However, it now looks like a recovery will take longer.”

Shares of MGM Resorts closed at $19.68 Monday on the New York Stock Exchange, up 21 cents or 1.08 percent. Las Vegas Sands closed down 31 cents or 0.61 percent to finish the day at $50.66. Wynn Resorts closed at $106.86 on the Nasdaq, down 7 cents or 0.07 percent.
Analyst sees no 'silver bullets' to Macau turnaround is republished from Online.CasinoCity.com.