Citing a variety of factors, Union Gaming analyst John DeCree — who heads up the company’s North America Equity/High Yield Research division in New York — has forecast a larger decline in Macau VIP revenue and lowered his price targets on Las Vegas Sands Corp. (LVS), MGM Resorts International and Wynn Resorts, Ltd.
DeCree released his findings in a note released on Monday.
The analyst has forecast a 15 percent contraction in Macau’s VIP revenue for 2019, compared with a previous estimate calling for just an eight percent drop. His mass market Macau forecast for this year remains unchanged, calling for growth of 10 percent.
Overall, DeCree expects gross gaming revenue (GGR) on the Chinese territory to decline two percent, down from a prior forecast calling for one percent growth.
We highlighted a confluence of factors driving our lower VIP forecast, including the threat from new regional APAC casinos, softer China macroeconomic trends resulting from US/China trade war, Macau’s VIP smoking ban, junket maturity, including the transition of mature junkets to principal roles, and local politics,” said DeCree in the note.
”Collectively, these items paint a more cautious outlook for VIP over the coming quarters,” he added.
In April, Macau’s six licensed casino operators notched GGR of $3.2 billion, the lowest monthly tally in nearly three years and a tumble of more than $250 million from March.
Cutting The Big Three
As a result of the slump in Macau’s VIP market, DeCree lowered his price estimates on LVS, MGM, and Wynn. The analyst dropped his target on Sands — the largest US casino operator by market capitalization — to $78 from $80. Even with the reduced price forecast, DeCree sounded a bullish tone on Sands.
“LVS has significant growth capital being deployed in high-return markets like Macau and Singapore and continues to be a cash flow machine, making a low-$60 entry price quite attractive for LVS today, especially for longer-term investors,” said the Union Gaming analyst.
Shares of Sands dipped 1.81 percent on Monday, extending the stock’s month-to-date decline to 13.19 percent, but the shares are higher by nearly 14 percent year-to-date. LVS’ Macau properties include the Parisian, the Plaza, and Sands Cotai Central. DeCree has a “Buy” rating on the stock.
Wynn Resorts — which garnered 75 percent of its 2018 operating from Macau — was tagged with a price target of $150, down from $165, by DeCree. While the analyst acknowledged a deteriorating VIP market in the world’s marquee gaming destination is a headwind for the owner of the Wynn Macau, he noted much of that scenario is already baked into the stocked.
For WYNN, we do realize it will be difficult for the shares to work in a negative VIP environment, but at current levels, we believe this is priced in for the most part,” said DeCree. “Furthermore, WYNN’s management has been quite busy looking for ways to create value,including pursuing M&A (i.e. Crown), raising its annual dividend, and potentially considering the sale of Encore Boston.”
Shares of Wynn dipped 1.02 percent yesterday, increasing the stock’s May decline to 15.63 percent. DeCree’s target of $150, though lowered, implies significant upside from the $120 area at which the stock closed Monday. The analyst reiterated a “Buy” rating on Wynn.
Wait Till Next Year On MGM
DeCree reaffirmed a “Buy” rating on MGM Resorts also, but with a modest price target revision to $38 from $40. He expects the stock to be “range bound” over the next two quarters, but noted next year sets up well for MGM investors. In the US, MGM is in the midst of a major cost-cutting effort and is still ramping up its Macau Cotai property.
“Our outlook for 2020 in Las Vegas remains favorable, with the triennial CON/AGG conference returning in 1Q20, coupled with easier comps for MGM, and the Raiders first season in Fall 2020,” he said in his note.
MGM slipped 2.09 percent on Monday and is off almost 8 percent this month. Union Gaming’s target of $38 on the stock is well above Monday’s closing price of $25.35.
Exploring Price Targets
A price target is an analyst’s projected future price level for a stock. Analysts can and do update price estimates on stocks in a variety of sectors over the course of a year and those estimates are often revised as fundamentals change and new information becomes available. That new data can include executive departures, earnings updates by the companies, mergers and acquisitions, or in the case of the aforementioned gaming companies, revised expectations in a key market.
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