Gambling Stock Roundup: Wynn Resorts, MGM & Melco Crown Eye Japan - Analyst Blog

Encouraging news flowed in for casino operators like Wynn Resorts Ltd. WYNN, MGM Resorts International MGM and Melco Crown Entertainment Limited MPEL last week. The Japanese prime minister stated that casino resorts in the country could contribute substantially to the economy, thus signaling toward legalization of gambling in the country. This would translate into ample opportunities for these operators in one of the largest untapped markets.

In a separate development, analysts upgraded their revenue growth prospects for Macau. Meanwhile, the State of Nevada Gaming Control Board provided an update on gambling revenues for the month of April. Iao Kun Group Holding Company Ltd. (IKGH) posted better-than-expected first-quarter 2014 results. (See last to last week's recap here: Gambling Stocks Roundup for May 27th, 2014).

Recap of the Week's Most Important Stories

1.    Japanese Prime Minister Shinzo Abe has agreed to the fact that casino resorts in Japan could boost the economy. Analysts believe that the bill to legalize gambling in Japan could be passed in the June legislative session, unlike what was expected previously. (Read more: Gambling Stock Roundup: WYNN Resorts, Las Vegas Sands in Focus).

2.    Despite expectations of a choppy economic environment in 2014, analysts at Wells Fargo & Company WFC increased their Macau gambling revenue guidance. They expect May revenues, which are yet to be declared, to be up in the range of 13.0% to 15.0% from the previous expectation range of 10.0% to 14.0%. We note that they had earlier lowered their expectation for Macau due to a potential slowdown in VIP bets owing to decelerating credit growth.

3.    According to the State of Nevada Gaming Control Board, Nevada gambling revenues were down a mere 0.27% to $852.0 million for the month of April. While revenues at The Las Vegas Strip were up 3.19%, they declined 2.55% at Downtown Las Vegas.

4.    Iao Kun Group Holding Company reported solid first quarter 2014 results with earnings and revenue beating the Zacks Consensus Estimate. Earnings of 29 cents per share, however, declined year over year owing to higher expenses. Revenues of $80.0 million were up 24.0% year over year driven by higher-than-normal win rate of 3.60% as well as revenues derived from the Oriental VIP Room, which the company had acquired in Jun 2013.

5.    Churchill Downs Inc. CHDN entered into an agreement with The Stronach Group (TSG) as per which the latter will use Churchill's Calder Race Course located in Miami Gardens, FL. The transaction that runs through 2020 is expected to be complete by Jun 30, 2014.  The Stronach Group will conduct live racing and maintain certain facilities used for racing and training at the race course at its own expense.

Performance

Last week, Caesars Entertainment Corp. CZR declined 1.09% while its subsidiary Caesars Acquisition Company gained only 0.08%. It seems that the market reacted positively on its efforts to improve its financial condition after the leverage buyout in 2008, but the rally did not last due to long-term concerns. (Read more: Caesars Entertainment Soars on Funding Plan).

However, the sluggish Macau environment could not dampen the performance of big players like MGM Resorts, Las Vegas Sands and WYNN Resorts, which gained on expansion efforts and better performance at the Las Vegas Strip.

Over the last 6 months, Caesars Entertainment, Melco Crown and Caesars Acquisition Company declined 9.83%, 3.58% and 0.99%, respectively. MGM Resorts and WYNN Resorts gained 30.64% and 26.80%, respectively, over the same time frame followed by Las Vegas Sands with a gain of 5.60%.
 

What's Next in the Gambling World?

Pinnacle Entertainment Inc. will attend the 2014 Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference on Jun 3, 2014 followed by the Brean Capital 2014 Global Consumer and Gaming Conference on Jun 4, 2014 along with Full House Resorts Inc. Both the conferences are expected to be held in New York City.  

We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect such movement in the coming days as well.

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