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Susquehanna Still Likes Casino Stocks Despite Macau Problems

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In a new report, analysts at Susquehanna updated their position on gaming companies MGM Resorts International (NYSE: MGM) and Wynn Resorts Ltd (NASDAQ: WYNN) following Las Vegas Sands Corp’s (NYSE: LVS) 1Q earnings miss. Analysts predict similar results from MGM and Wynn and lowered their near-term expectations for the companies.

Macau Outlook

Analysts are calling for a 20.1 percent decline in gross gaming revenue (GGR) in Macau in 2015 and a 10.5 percent increase in GGR in 2016. They note that Las Vegas Sands’ management commented during the company’s conference call that the environment in Macau has become increasingly competitive, resulting in lower margins and occupancy declines.

Related Link: Casino Stocks Are Spiking Higher On New Macau Revenue Numbers

Vegas Outlook

Analysts point out that Las Vegas Strip gaming revenue declined 6.2 percent in January/February. They are predicting an overall 1Q15 total Strip gaming revenue increase of 4.0 percent and believe the relative strength in core gaming in Las Vegas so far this year coupled with weakness in baccarat will likely benefit MGM over Wynn.

Land & Buildings Proposal

Susquehanna analysts explain that Land & Buildings’ REIT conversion plan and proposed valuation of the opco/propco pairing is unrealistic. Land & Buildings suggested a $25 valuation for and MGM REIT alone and a $33 valuation for the opco/propco pairing.

Susquehanna values a theoretical MGM REIT at $12 per share and an MGM C-corp at $11 per share, for a total of $23 in value for the pair. Analysts note that these valuations are essentially meaningless because MGM management has rejected the proposed restructuring plan.

Price Targets

Susquehanna has a Positive rating on the stocks of MGM and Wynn. Analysts maintained their $26 price target for MGM, but lowered their target for Wynn from $189 to $159.

Latest Ratings for LVS

DateFirmActionFromTo
Oct 2016Bank of AmericaUpgradesNeutralBuy
Oct 2016CitigroupMaintainsBuy
Sep 2016CLSAMaintainsPerform

View More Analyst Ratings for LVS
View the Latest Analyst Ratings

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