Gambling Stock Roundup: Isle of Capri, Penn National and Melco Crown Dominated Headlines - Analyst Blog

The last week began with the release of Isle of Capri Casinos, Inc.'s ISLE strong fiscal fourth quarter and 2014 results. Penn National Gaming Inc. PENN along with its joint venture partner provided an update on the new casino project to be built in Orange County, N.Y. Additionally, Melco Crown Entertainment Limited MPEL announced that it will raise debt worth $129.0 million to finance its City of Dreams Manila casino.

Further, Macau officials declared that from Jul 1, 2014 onward they would reduce the maximum number of days Chinese passport holders with transit visas can stay in Macau from seven to five. Meanwhile, Caesars Entertainment Operating Company, Inc. (CEOC), a subsidiary of Caesars Entertainment Corporation CZR has further amended the time for its cash tender. (Read last to last week's developments: Gambling Stocks Roundup for June 16, 2014)

Recap of the Week's Important Stories:

1.    Isle of Capri Casinos posted strong fiscal fourth quarter and 2014 results.  After missing the Zacks Consensus Estimate for the past three quarters, earnings per share of 34 cents beat the consensus mark of 23 cents by 47.8%. Also earnings went up 79.0% year over year as a decline in interest expense and increase in revenues more than offset higher operating expenses. Revenues of $261.0 million increased 1.3% year over year and beat the Zacks Consensus Estimate by 2.0%.

2.    Penn National Gaming, Inc. provided an update on a $750.0 million new casino project to be built in Orange County, N.Y.  The Live! Hotel & Casino New York casino is being built in partnership with the Cordish Companies. This property will feature a hotel with more than 300 rooms, a spa, a fitness center, slot machines, live table games and a spacious conference center. In a separate development, FBR Capital stated that it expects Penn National Gaming's second quarter results to be better than estimates as same store declines at some of its properties have narrowed.

3.    The Macau government announced that it would reduce the maximum number of days that Chinese passport holders with transit visas can stay in Macau from seven to five days, beginning Jul 1, 2014. This decision comes in the wake of China's crackdown on the use of UnionPay hand-held card swipers at casinos to illegally transfer funds from mainland China to Macau. This step can be viewed as a step by the government to stop the misuse of transit visas by travelers who stay back in Macau for a long period However, according to a Union Gaming analyst, most visitors to Macau only stay a day or two. Therefore, this policy will not have a major impact on gaming revenues.

4.    Caesars Entertainment Operating Company has further amended the time for its cash tender offers to purchase any and all of the outstanding 5.625% Senior Notes due 2015 and 10.0% Second-Priority Senior Secured Notes due 2015 from Jun 16, 2014 to Jun 27, 2014. On Jun 4, the company had extended the time period from Jun 3, 2014 to Jun 16, 2014. (Read More: Wynn, MGM Resorts Tumble on Macau Data and Cautious Outlook). This amendment of cash tender offer comes in the wake of Caesars Entertainment's comprehensive financing plan to aid independent stock listing and significant de-leveraging of CEOC. (Read More: Caesars Entertainment Soars on Funding Plan).

5.    As per media reports, the Philippine unit of Melco Crown Entertainment is planning to raise $129.0 million debt for the funding of City of Dreams Manila casino through sale of shares. The company had raised the budget for City of Dreams Manila – leisure, gaming and entertainment destination resort currently under development at Entertainment City, Manila, Philippines – from 28 billion pesos to 37 billion pesos. City of Dreams Manila is one of the four casinos currently under construction in the Philippine capital's gaming district and is set to open in later in 2014. Further, Morgan Stanley downgraded shares of Melco Crown Entertainment. Though the firm expects the company to experience a better second quarter than its peers based on the run-rate in April and May, it fears that the company will face the risk of mass-market cannibalization as it opens more locations in Philippines.

Performance

Share prices of most casino companies tend to fluctuate frequently owing to the viewpoints provided by different analysts, particularly regarding growth prospects in Macau. Last week, a couple of firms expressed their concerns over the Macau market for the near term. However, they remained bullish over the medium as well as long term.  In one other update, Macquarie Research indicated that it expects gross gaming revenue to decline 2.0% in the month of June but increase 7.0% and 12.0% for the second quarter and full year, respectively.

However, one cannot ignore the fact that these companies are adversely affected by a sluggish domestic market. Besides the domestic market, factors that remain concerns include China's crackdown on illegal money transfers, credit growth concerns, potential for tighter restrictions on visas and an impending smoking ban in casinos. These issues could adversely affect the revenues of the companies in the Macau region in the future quarters.

Despite the fluctuations, shares of most leading casino companies gained over the last week.  Las Vegas Sands Corp. LVS was the biggest gainer with a 3.7% gain, followed by Melco Crown Entertainment, MGM Resorts International MGM, WYNN Resorts Ltd. WYNN and Boyd Gaming Corporation. However, Caesars Acquisition Company and Caesars Entertainment Corporation lost 0.6% and 0.1%, respectively, possibly due to the efforts undertaken to improve its financial condition after the leverage buyout in 2008.

Over the last 6 months, MGM Resorts, WYNN Resorts and Boyd Gaming have gained 14.3%, 10.2% and 5.5%, respectively, while Melco Crown, Caesars Entertainment, Las Vegas Sands and Caesars Acquisition Company have experienced a decline of 14.5%, 9.5%, 4.4% and 0.7%, respectively.
 

What's next in the Gambling World?

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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