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Should You Bet on Casino ETFs after Mixed Earnings?

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The overall casino industry is caught in a spiralling slowdown for quite some time now. While Las Vegas was a drag earlier and Macau was an outperformer, the backdrop took a turn in the last few quarters, making Macau a culprit. Notably, Macau - a Chinese territory - is one of the largest casino gaming destinations in the world.

Credit crunch issues in mainland China, check on illegal money transfers especially in VIP gaming, constraints on visa and last but not the least, a broad-based slowdown in China were responsible for this drop-off (read: Will Troubles in Macau Spoil Gaming ETF Investments? ).

Though the situation has improved, as evident from mixed Q3 earnings from casino bellwethers, there is still room for improvement. Despite the 'golden week', gross gaming revenues in Macau plummeted 28.4% year over year to $2.51 billion in October. In China, the golden week is a seven-day long holiday period starting from October 1, when people party and splurge.

However, the current decline, which marks the seventeenth successive monthly and fourteenth consecutive double-digit decline, was what analysts had expected. The outright negative mood has weighed on the casino gaming ETF Market Vectors Gaming ETF ( BJK ), which is down 11.5% so far this year (as of November 4, 2015). However, mixed earnings gave a considerable push to the fund in the last one month, when it added about 5.7%.

Given this, investors might be interested in the casino earnings details and the potential impact on the casino ETF ahead.

Q3 Earnings in Detail

MGM Resorts International ( MGM ) posted third-quarter 2015 earnings of 15 cents per share on October 27. Earnings surpassed the Zacks Consensus Estimate of 3 cents and reversed the year-ago loss of 2 cents.

Revenues were down 8.2% to $2.28 billon and fell short of the Zacks Consensus Estimate by 0.6%. The downside reflects a significant decline in revenues from MGM China. VIP gambling continues to be a drag in China.

However, net revenue at wholly owned domestic resorts was up 3.7%. Casino revenues from wholly owned domestic resorts went up 4%. Along with this, MGM Resorts announced a plan to create a controlled real estate investment trust (REIT) that will be named MGM Growth Properties LLC. The transaction is expected to be completed in the first quarter of 2016.

Thanks to the earnings beat plus restructuring effort, MGM shares gained about 10.3% in the last five trading sessions (as of November 4, 2015).

On October 21, Las Vegas Sands Corp. ( LVS ) fell shy of the Zacks Consensus Estimate on revenues but surpassed the same on earnings. Cost containment aided earnings. Also, the company declared a 10.8% increase in dividend for 2016.

Earnings of 66 cents per share fell 21% year over year hurt by an 18% decline in revenues. Earnings beat our estimate by 4.8% while revenues of $2.89 billion fell short of the Zacks Consensus Estimate of $2.97 billion. Gross gaming revenues in Macau declined in double digits in all three months of the quarter. LVS stock was up about 6.1% since it reported earnings (as of November 4, 2015).

On October 15, Wynn Resorts Ltd. ( WYNN ) posted mixed third-quarter 2015 results. Adjusted earnings of 86 cents dropped 56% and missed the Zacks Consensus Estimate by 14.7%. Revenues of $996.3 million missed the consensus mark of $1.03 billion by 3.4% and slipped 27% year over year, owing to a choppy performance both Macau and Las Vegas.

WYNN resorts lost 1.2% since reporting earnings (as of November 4, 2015) (see all the Consumer Discretionary ETFs here ).

Casino ETF: Buy on the Value?

Investors should note that casino stocks are extremely cheap in valuation after undergoing a steep sell-off. The fund is presently trading at $34.04 per share which is 24.6% down from its 52-week high. Moreover, though Macau revenues are still lackluster, in-line data and signs of stability in companies' earnings point to a revival, albeit slow (read: Will the Casino ETF Finally Hit Jackpot? ).

Notably, all three companies mentioned above have found a place in the top 10 holdings of this $27.6 million fund with a considerable share. Las Vegas Sands and Sands China together have about 14% exposure in BJK. MGM Resorts International has 4% weight in the fund while Wynn Resorts Ltd accounts for more than 6% of BJK. The product charges 65 bps in fees. The fund lost over 20% in the last one year (as of November 4, 2015).

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MGM RESORTS INT (MGM): Free Stock Analysis Report

LAS VEGAS SANDS (LVS): Free Stock Analysis Report

WYNN RESRTS LTD (WYNN): Free Stock Analysis Report

MKT-VEC-GAMING (BJK): ETF Research Reports

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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.

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