Macau Casino Stocks Worth Revisiting After Declines, Says Analyst

Posted on: September 22, 2023, 03:59h. 

Last updated on: September 23, 2023, 09:37h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Macau casino stocks have been sliding since early August thanks to fears regarding China’s slumping economy and a recent short closure of gaming venues owing to a typhoon. But at least one analyst believes stocks have reached the point that the group merits revisiting.

Macau stocks
Wynn Palace in Macau. An analyst said valuations are attractive on Wynn and Las Vegas Sands.(Image: Bloomberg)

In a new report to clients, Stifel analyst Steven Wieczynski says that macro fears in China’s economy — the world’s second-largest behind the US — are priced into shares of Macau operators at this point, indicating that valuation opportunities could be afoot.

Pent-up demand remains robust, and we believe the upcoming Golden Week Holiday (late-September to early-October) will provide evidence of just that,” observed the analyst. “Valuations remain overly compelling with shares of Macau-centric stocks trading at 25%+ discounts to normal trading ranges.”

Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN), two of the three US-based Macau concessionaires, have been slumping since last month. Over the past month, shares of Sands are off more than 15%, while shares of the Wynn Macau parent are lower by 4.70% over that time.

Sands, Wynn Among Macau Casino Stocks to Consider

Wieczynski pared price targets on Sands and Wynn to $69 and $135, respectively, but that still implies a significant upside for both names. Wynn closed at $91.56 today, while Sands settled at $45.79.

Both stand to benefit as Macau’s gross gaming revenue (GGR) flirts with pre-coronavirus levels this year. Standard & Poor’s estimated GGR will reach 85% to 90% of pre-coronavirus levels this year, up from a prior forecast of 75% to 85%. S&P sees a full recovery in 2024. That’s particularly meaningful to Sands, which, along with rival Galaxy Entertainment, is a leader among mass and premium-mass bettors who visit Macau.

While September GGR is likely to be slack due to the aforementioned typhoon-related closures, the upcoming Golden Week holiday could provide an important avenue for refuting the China economic weakness thesis.

“We believe the setup is compelling for Macau-centric names heading into 2H23/2024,” added Wieczynski. “Stocks have significantly underperformed our coverage universe not only since the beginning of the year but more recently over the last two months. China macro fears are the primary culprit of the recent weakness in shares, in our view.”

Preference for Wynn

While Wieczynski is constructive on Sands China parent Las Vegas Sands, he extolled a preference for Wynn, citing that operator’s exposure to premium mass clients – a segment that’s economically sensitive than mass market bettors.

In both cases, Sands and Wynn are trading at notable discounts to historical averages, indicating investors can nibble at these names without needing to embrace lofty multiples.

“LVS is currently trading at a 2.5 turn discount to their historical average while WYNN is trading at a 3x discount to their previous trading average,” Wieczynski concluded.