Gambling Stock Roundup: Wynn Resorts Beats, Churchill Downs Disappoints, Macau Struggles - Analyst Blog

The last week saw a number of companies in the gambling industry coming out with their quarterly results. Wynn Resorts Ltd. (WYNN) stole the show as it posted better-than-expected results on both counts. While Boyd Gaming Corp's (BYD) earnings came in line with the Zacks Consensus Estimate, revenues beat the same. MGM Resorts International (MGM) on the other hand, posted a loss, missing the consensus estimate. However, its revenues marginally beat the same.

The sense of optimism that prevailed after these companies reported was offset by Churchill Downs Inc. (CHDN) as it disappointed investors with its performance. Declining numbers from Las Vegas and Nevada for the month of September added to the downside. (Read last week's development: Gambling Stock Round Up for Oct 27, 2014)

Recap of the Week's Important Stories:

1.    After posting profits consistently since the beginning of 2013, MGM Resorts posted a loss of 2 cents per share that compared unfavorably with the Zacks Consensus Estimate of earnings of 6 cents and also the year-ago earnings of 2 cents.  The loss was due to a decline in casino revenues in the domestic market and lower number of VIP gamblers in the Macau market. Also, a decline in margins owing to higher expenses related to investments in Delano at Mandalay Bay and the Strip frontage at Monte Carlo led to the loss.

Total revenue of $2.49 billion increased 1% year over year and marginally beat the Zacks Consensus Estimate of $2.48 billion. The marginal upside reflects an increase in revenues from mass market gamblers in China. (MGM Resorts Posts Q3 Loss on Weak Gambling Revenues)

2.    Wynn Resorts posted third quarter 2014 results with earnings and revenues beating the Zacks Consensus Estimate. The company increased its quarterly dividend by 20% and also approved an additional cash dividend of $1.00 per share. Adjusted earnings of $1.95 in the third quarter grew 6% from the year-ago quarter and comfortably beat the Zacks Consensus Estimate of $1.82 by 7.1% as a strong Las Vegas market made up for the sluggish environment experienced in Macau.

Wynn Resorts' revenues of $1.37 billion beat the Zacks Consensus Estimate of $1.36 billion by 1%, possibly due to the strength experienced in Las Vegas. Meanwhile, revenues declined 1.4% year over year owing to a sluggish performance in Macau, primarily in the VIP segment. (Wynn Resorts Beats Q3 Earnings on Growth in Las Vegas)

3.    Boyd Gaming broke even in the third quarter of 2014, in line with the Zacks Consensus Estimate but better than a loss of 8 cents per share in the year-ago quarter. The results reflect improved revenues and margins and a decline in interest expenses. Net revenue of $738.8 million beat the Zacks Consensus Estimate by 0.8% and was marginally up year over year owing to an improvement in revenues in Las Vegas Locals and Downtown segments.

EBITDA margins improved at all segments with adjusted EBITDA of $163.9 million, up 5.5% year over year. Share price of the company jumped 4.7% in response.

Since Boyd Gaming's Atlantic City partner MGM Resorts re-acquired its 50% stake in Borgata in Sep 2014, Boyd Gaming will account for only 50% investment in Borgata by applying the equity method for periods subsequent to the date of deconsolidation. Therefore, the company has revised its EBITDA guidance for 2014 and expects it in the range of $576 million to $586 million.

4.    Churchill Downs posted disappointing third quarter 2014 results. Earnings from continuing operations of 20 cents per share missed the Zacks Consensus Estimate of 31 cents by 35.5% and declined 61% year over year. The downside reflects a decline in revenues and an increase in interest expenses.

Net revenue of $173.7 million also missed the Zacks Consensus Estimate of $177.0 million by 2% and declined 6% year over year. The decline reflects closure of racing operations at Calder, loss of Texas online wagering, soft regional gaming trends as well as declines in Racing Operations' handle resulting from smaller field sizes at Arlington. Share price fell 1% in response.

In one other development, the company entered into an agreement with Saratoga Harness Racing, Inc. (SHRI) – Northeast's premier racing and gaming company. Per the agreement, Churchill Downs will purchase a 25% membership interest in Saratoga Casino Holdings, LLC for approximately $30.6 million cash. Per one other agreement, Churchill Downs will manage the Saratoga Casino and Raceway and Saratoga Casino Black Hawk.

Also, the company has increased its annual dividend to $1.00 per share, up 15% from the prior annual dividend. This marks the fourth consecutive  year of increase.

5.    According to the Nevada Gaming Commission, gaming revenues in Nevada declined 6% to $901.7 million for the month of September, worse than a decline of 3.7% in the month of August. Revenues at Las Vegas Strip fell 12% to $495 million owing to a 30% decline in Baccarat revenues as high-roller VIP category gamblers stayed away.

Performance

Except for Las Vegas Sands Corp. (LVS) that declined 0.8% owing to sluggish September revenues in Las Vegas and Nevada, share prices of all other gambling stocks increased over the last five trading sessions. Share price of Caesars Acquisition Company (CACQ) increased 16% followed by Boyd Gaming that increased 12.5%.

This was the third consecutive week when gambling stocks continued to rally. We need to wait and see whether this is indicative of a real recovery or just a temporary upside. Analysts believe October revenues to have declined 20% to 23% year over year – marking the fifth consecutive monthly decline after two years of robust growth.

Over the last six months, all gambling stocks lost value with Caesars Entertainment Corp. (CZR) and Caesars Acquisition witnessing the maximum decline of 34% and 28.2%, respectively.
 

What's Next in the Gambling World?

Full House Resorts Inc. with a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00% is scheduled to report its third quarter results on Nov 6, 2014. Melco Crown Entertainment Limited with a Zacks Rank #5 (Strong Sell) and Earnings ESP of -6.90% is also scheduled to report its third quarter results on the same day.

Caesars Entertainment, carrying a Zacks Rank #4 and Earnings ESP of -2.38%, and Caesars Acquisition Company with a Zacks Rank #3 (Hold) and Earnings ESP of 0.00% are both set to report third quarter results on Nov 10, 2014.

Also, the Macau government is due to report October revenue figures on Nov 4, 2014.

We note that gambling stocks have oscillated between gains and losses in recent sessions. Given the important events lined up this week, investors can expect this volatility to continue in the coming days as well.

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