Macau casino stocks have rallied so far in 2023 as China has lifted most of its COVID-19 travel restrictions. However, Macau gaming revenue still hasn’t recovered to 2019 levels, and some investors may be worried that the stocks may have limited additional upside from here.
The Numbers: On Monday, Bank of America analyst Shaun Kelley said he expects positive earnings revisions for Macau stocks Wynn Resorts, Limited WYNN, Las Vegas Sands Corp. LVS, and MGM Resorts International MGM in coming months.
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Kelley said Macau has now recovered about 47% of its 2019 pre-pandemic gross gaming revenue run rate, including 78% of mass market, non-VIP revenue. However, after a strong start to the year, he said Las Vegas Sands and Wynn are trading at 12x and 10.5x projected 2024 EBITDA already only a 10% to 20% discount to historical averages.
“The mix of gaming revenue in Macau has changed dramatically in the last decade with VIP’s share dropping from 73% in 2010 to an estimated 24% in 2022,” Kelley said.
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Kelley said bulls would argue positive earnings revisions, pent-up demand, improved operating efficiency and margins and valuation upside are enough to own the Macau casino stocks at currency levels. However, bears would say 2024 consensus estimates have little upside, mass market spending has historically generated very little long-term growth and capital returns could be more limited than they were during previous growth cycles.
How To Play It: Bank of America has the following ratings and price targets for U.S.-listed Macau casino operators:
- Las Vegas Sands: Neutral rating, $62 price target.
- Wynn: Neutral rating, $110 price target.
- MGM: Neutral rating, $46 price target.
- Melco Resorts & Entertainment Ltd MLCO, Buy rating, $17 price target.
Benzinga’s Take: The renewal of Macau gaming licenses and the lifting of COVID-19 travel restrictions have removed two of the biggest overhangs of the past couple of years for Macau casino operators. However, China’s regulatory crackdown on VIP junket operators suggests it’s unlikely for high-growth VIP revenue to return to pre-pandemic peaks anytime soon, clouding the long-term outlook for Macau.
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