Casino stocks have been in the limelight of late due to one
issue or the other. Share prices of leading U.S.-based casino
operators such as
Wynn Resorts Ltd.
Las Vegas Sands Corp.
MGM Resorts International
Melco Crown Entertainment Limited
) tumbled on credit growth concerns in China, which are expected
to result in lower VIP bets. These casino operators earn the
majority of their revenues from Macau, the only city in China
where gambling is legal.
LAS VEGAS SANDS (LVS): Free Stock Analysis
MGM RESORTS INT (MGM): Free Stock Analysis
MELCO CROWN ENT (MPEL): Free Stock Analysis
WYNN RESRTS LTD (WYNN): Free Stock Analysis
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Credit growth is one of the driving forces behind the gaming
industry. A decline in credit growth rate limits prospects for
economic expansion. Tight money supply would impact spending on
casino gaming as visitors will have less money in hand to gamble.
As per media reports, though China banks have issued more new
loans in the month of March than February, outstanding bank loans
have grown at the slowest pace on a yearly basis since 2005.
As a matter of fact, M2, a measure of broad money supply, missed
economist expectations. Total social financing, the broadest
measure of lending in China, has also expanded at a slow pace
compared to the year-ago period. This tightening of credit can be
seen as a measure to discourage excessive borrowing to curb the
rise in property prices.
As per a few analysts, credit slowdown is still on track and
credit data is not as bad as M2 growth indicates. However,
according to Wells Fargo & Company (WFC), credit growth
concerns are not yet over and it expects VIP growth to decelerate
over the next six months. We believe that this would hurt the
profitability of these casino companies.
Meanwhile, China's economy grew at the slowest pace in the first
quarter of 2014 in the past one and a half years, which has
compelled the government to take a few actions to stabilize the
world's second-largest economy. This increases the concerns of
the gaming companies.
Macau, one of the world's fastest growing-economies for the last
three years, has been a treasure trove for gaming operators who
earn the majority of their revenues from here. Despite credit
concerns and China's sluggish economy, these casino operators are
busy expanding their share of hotel rooms in Macau to accommodate
the increasing number of visitors. Though there are no casino
openings scheduled for this year, Wynn Resorts, MGM Resorts and
Las Vegas Sands are all set to make multibillion dollar openings
by 2016. The development of facilities for entertainment, retail
and convention centers would give visitors an added reason to
visit Macau. Meanwhile, improving infrastructure will
shorten the journey to Macau from the Chinese mainland and drive
While Wynn Resorts sports a Zacks Rank #1 (Strong Buy), Las Vegas
Sands, MGM Resorts and Melco Crown Entertainment carry a Zacks
Rank #2 (Buy).