Shares with exposure to the ailing Macau casino industry won't hit bottom until Wall Street's 2015 estimates see further cuts, an analyst said Friday.
Wells Fargo analyst Cameron McKnight believes Wall Street's 2015 consensus for the sector is currently too high by as much as 10 percent. Investors will witness multiple estimate cuts "before stocks bottom out" later this year, McKnight said in a note Friday, when shares in the sector were generally down.
McKnight now expects total August gambling revenue in Macau to register “negative single digit growth.” Official data for the month are set for release Monday, a holiday for U.S. markets.
With Macau growth slowing in July and few signs of improvements in August "trends have turned from 'choppy' to 'rocky'," McKnight said.
Macau, the world's largest gambling center, is the only place in China where casinos are legal.
McKnight believes revenues have declined lately in the face of that country's economic slowdown, as well as a crackdown on corruption that has so far resulted in the reported arrest of more than 60,000.
McKnight said investors have yet to focus on a plan by Macau authorities to impose a smoking ban starting October 6 on Macau's mass-market gaming floors.
High-end private VIP gaming rooms are exempt, but China's smoking rate is nearly 70 percent higher than the United States.
Nonetheless McKnight maintains Outperform ratings on Las Vegas Sands LVS, Melco Crown Entertainment MPEL and Wynn Resorts WYNN citing long-term prospects and current cash flow.
In Friday afternoon trading, Wynn was down 1.2 percent, Las Vegas Sands and MGM fell two percent while Melco was off 1.7 percent.
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