Weekly Casino Notes: Macao October Gaming Data And Casino Earnings

The past week was eventful for casino operators after the October gaming data was released by the Macau government. Macau witnessed continued decline in gaming for the fifth consecutive month in October and gambling revenue fell 23% in one of the worst monthly declines in the world’s largest gambling hub. ^[1] The impact of lower gaming in Macau was also apparent in the earnings of casino stocks including, Las Vegas Sands, Wynn Resorts and MGM Resorts. Moreover, Sheldon Adelson, Chariman and CEO of Las Vegas Sands said that it might take another three to four months for gambling to recover in Macau. ^[2] On that note, we discuss below some key developments around this story.

Las Vegas Sands

Las Vegas Sands (NYSE:LVS) stock reacted to the gaming numbers and declined 4% after the data was released. Looking at the year-to-date movement of Las Vegas Sands’ stock, it has declined 25% amid continued weakness in Macau. The slowdown in gaming is a result of Chinese government crackdown against corruption. As a result, VIP players are staying away from Macau.  However, it must be noted that Las Vegas Sands has scaled up its mass-gaming operations in the region. VIP gaming accounted for only 16% of Macau profits while mass-market gaming contribution was around 53% during the third quarter. Given the recent decline in Macau gaming, the company has been shifting its tables from VIP to mass segment for the past few quarters. VIP table count decreased by 21% to 370 tables while mass-market gaming tables increased 9% to 1150 tables during the third quarter (Read More – Las Vegas Sands Earnings Grow 2% While Revenues Decline Amid A Slowdown In Macau Gaming).

We estimate gross revenues of about $18 billion for Las Vegas Sands in 2014, with EPS of $3.54, which is in line with the market consensus of $3.31-$3.98, compiled by Thomson Reuters. We currently have a $74 price estimate for Las Vegas Sands, which is more than 20% ahead of the current market price.

Wynn Resorts

Wynn Resorts (NASDAQ:WYNN), like other casino operators, is facing the headwinds from a decline in Macau gambling. As compared to Las Vegas Sands, Wynn has a much higher exposure to VIP gaming in the region. We estimate that VIP gaming accounts for more than 35% of Wynn’s stock value. The impact of lower VIP turnover was visible on Wynn’s quarterly results, which saw 6% revenue decline in Macau while the EBITDA was down 1% to $329 million (Read More – Wynn’s Macau Revenues And EBITDA Decline Amid Lower VIP Gaming Turnover). While Wynn has established a premium casino image in Macau and attracts more VIP players, it has seen significant growth in its mass-market gaming operations in the recent past. While VIP gaming is struggling in Macau, mass-market continues to grow and saw gaming revenue growth of 16% during the third quarter. ^[3]

We estimate gross revenues of over $7 billion for Wynn Resorts in 2014, with EPS of $8.54, which is in line with the market consensus of $7.26-$8.60, compiled by Thomson Reuters. We currently have a $186 price estimate for Wynn Resorts, which is more than 5% ahead of the current market price.

MGM Resorts

Unlike Las Vegas Sands and Wynn Resorts, MGM Resorts (NYSE:MGM) derives majority of its value from its U.S. operations. The company has a wide presence on the Las Vegas Strip and generates a significant portion of its revenues from non-gaming sources. The company reported a net loss of $0.04 a share in the third quarter as compared to a loss of $0.05 per share in the prior year period. Macau revenues declined 2% amid lower VIP turnover while EBITDA jumped 12% due to robust mass-market growth (Read More – MGM Resorts Q3 Earnings Benefit From Macau Mass-Market Gaming Growth). The stock declined 3% after the October gaming data was released on November 4th.

We estimate gross revenues of about $11 billion for MGM Resorts in 2014, with EPS of $0.54, which is in line with the market consensus of $0.40-$0.62, compiled by Thomson Reuters. We currently have a $24 price estimate for MGM Resorts, which is approximately 10% ahead of the current market price.

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1. Macau Gambling Revenue Falls 23% in October, The Wall Street Journal, Nov 4, 2014 [↩]
2. Las Vegas Sands’ (LVS) CEO Sheldon Adelson on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Oct 16, 2014 [↩]
3. Macau VIP down 19 pct y-o-y in 3Q: govt, GGR Asia, Oct 16, 2014 [↩]