Barclays 'Still Looking For The Bottom' In Macau

In a new report out this week, Barclays analyst Felicia Hendrix urges caution when it comes to calling a bottom in Macau gaming stocks. Although there have been several recent news reports and analyst reports indicating that Macau may have made it through the worst of the downturn, Hendrix wants to see more evidence before she is convinced that the gaming stocks have found a bottom.

Show Me The Money

Recent governmental commentary, including an easing of mainland visitation restrictions and the potential for a scaled-back smoking ban, have sent Macau stocks surging in recent weeks. However, Hendrix continues to urge caution in Macau for the time being.

“While declining GGR and the risk of budget deficits in Macau could be driving legislators to take a less restrictive stance, we need to see concrete evidence of sustained GGR stabilization to believe the sector has bottomed,” she explained.

Policy Implications

According to Hendrix, investors may be overestimating the affect that government policy changes could have on Macau. Barclays estimates that the changes to transit visa restrictions will affect only about 2.5 million annual Macau visitors out of about 32 million total visitors.

In addition, Barclays’ projection of 2016 GGR growth of 2 percent doesn’t assume either a VIP smoking ban or the removal of mass floor smoking lounges. Therefore, Hendrix still sees the smoking ban (or lack thereof) as only a potential negative catalyst, not a potential positive one.

Stock Picks

Following a run-up in Las Vegas Sands Corp. LVS’s share price, MGM Resorts International MGM is Barclay’s top Macau stock pick for now. Barclays has an Overweight rating on Sands and MGM and an Equal-Weight rating on Wynn Resorts, Limited WYNN.