Share price of one of the leading gaming companies,
MGM Resorts International
) fell 2.4% on Jan 22, 2014 after
JPMorgan Chase & Co.
), a financial holding company, downgraded it to Neutral from Buy
as per investors.com. 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.
) 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
) 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
LAS VEGAS SANDS (LVS): Free Stock Analysis
MGM RESORTS INT (MGM): Free Stock Analysis
MELCO CROWN ENT (MPEL): Free Stock Analysis
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