Casino Stocks Down on Macau Growth Worries - Analyst Blog


Share price of one of the leading gaming companies, MGM Resorts International ( MGM ) fell 2.4% on Jan 22, 2014 after JPMorgan Chase & Co. ( JPM ), a financial holding company, downgraded it to Neutral from Buy as per According to JPMorgan, excessive aggressive growth is expected from the Macau market - one of the top gaming destinations in the world and a region from which MGM earns the majority of its revenues.

MGM Resorts' stock hit a 52 week high on Jan 10, 2014 after the Chinese government announced solid gaming revenues for Macau in 2013. According to China's Gaming Inspection and Coordination Bureau, Macau recorded casino revenues of $45 billion in 2013, up 18.6% year over year. This led investors to be overenthusiastic and the stock was heavily traded. This created a bubble leading JP Morgan to downgrade the stock anticipating market saturation.

Share price of another gaming company Las Vegas Sands Corp. ( LVS ) also declined 1.9% on Jan 22, 2014. Like MGM Resorts, Las Vegas Sands also earns majority of its revenues from Macau, the only city in China where gambling is legal. Las Vegas Sands also hit a 52 week high on Jan 2, 2014 due to similar reasons and its shares were heavily traded.

Other casino operators like Melco Crown Entertainment Limited ( MPEL ) and Wynn Resorts Ltd. which also earn majority of their revenues from Macau experienced a share price decline on Jan 22 owing to these issues.

JPMorgan's downgrade could also be attributed to a decline in credit growth rate. Credit growth is one of the driving factors in the Macau casino gaming industry and a decline in credit growth rate limits prospects for economic expansion. It fell 25% year over year in Dec 2013 as per Wells Fargo & Company. The decline in credit growth is expected to dampen results for mid-2014. Also, a few analysts expect high-end VIP gamblers to avoid the Macau crowd during the weeklong Chinese New Year celebrations from Jan 31 to Feb 10.

Given these factors, JP Morgan indicates that these Macau casino stocks are fairly valued and advises investors to cut down on their positions instead of being too bullish.

While Melco Crown Entertainment and Wynn Resorts carry a Zacks Rank #1 (Strong Buy), MGM Resorts International and Las Vegas Sands carry a Zacks Rank #2 (Buy).

JPMORGAN CHASE (JPM): Free Stock Analysis Report

LAS VEGAS SANDS (LVS): Free Stock Analysis Report

MGM RESORTS INT (MGM): Free Stock Analysis Report

MELCO CROWN ENT (MPEL): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: JPM , LVS , MGM , MPEL

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