Markets
LVS

Casino Stocks Fall as Fitch Cuts 2015 Macau Revenue View

Share price of leading casino stocks like Las Vegas Sands Corp. LVS , Wynn Resorts Ltd. WYNN , MGM Resorts International MGM and Melco Crown Entertainment Limited MPEL tumbled in yesterday's trading as analysts at Fitch Ratings lowered their Macau gaming revenue forecasts for 2015. The firm now expects gaming revenues to decline in the range of 33% to 34% this year compared with the previous expectation of a decline of 29%.

Why the Revision?

Gaming revenues in the first eight months of 2015 declined 36.5% with the latest decline being 35.5% for the month of August. The decline reflects the impact of the anti-graft corruption campaign run by the government since May 2014. Owing to the drive, the region has posted revenue declines for 15 consecutive months that includes 12 months of consecutive double-digit decline.

As a part of the crackdown on corruption in China, Macau officials have imposed strict restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. Restrictions like limitation on the use of state-backed payment processor UnionPay has also made it harder for players to obtain cash to gamble. Also, high-stake gamblers are curtailing spending amid a cooling Chinese economy. Moreover, tighter restrictions on visas and the partial smoking ban in casinos have also been hurting numbers.

Also, a 19% fall in gaming revenues last week could also be a reason for the lowered forecast.

What's in Store for 2016?

Fitch currently expects revenues in 2016 to be better than 2015. It expects revenues to be flat in 2016 compared to a decline in 2015, anticipating positive impact from new properties set to open next year. Also, it expects government's decision to ease visa restrictions to aid revenues.

Macau has restricted smoking in smoking rooms and VIP gaming areas in casinos and is considering a complete ban. However, per recent media reports, the government might allow smoking in Macau casinos if the operators can scientifically prove that the smoking rooms can protect its employees as well as guests from the harmful tobacco smoke. If the casino operators manage to abide by the rules, the easing of smoking ban in casinos might be able to offset the ongoing decline in revenues to some extent. This could encourage gamblers to visit the casinos in the region.

Our Take

The road to recovery seems a bit difficult as of now. The devaluation of the yuan and the consequent collapse of the Chinese market have further compounded woes for casino operators.

Meanwhile, the continuous down trend in revenues would adversely impact Macau's GDP that has been declining for four consecutive quarters as gaming represents 85% of its revenues.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

LAS VEGAS SANDS (LVS): Free Stock Analysis Report

WYNN RESRTS LTD (WYNN): Free Stock Analysis Report

MGM RESORTS INT (MGM): Free Stock Analysis Report

MELCO CROWN ENT (MPEL): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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


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

In This Story

LVS MGM WYNN

Other Topics

Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More