Casino Stocks Lower As Two Analysts Issue Bearish Comments

Casino stocks on Tuesday traded lower as analysts from both Deutsche Bank and Credit Suisse issued bearish comments and a weak outlook for the industry.Shares of Melcro Crown Entertainment Ltd (NASDAQ: MPEL) and MGM Resorts International (NYSE: MGM) were trading lower by around three percent Tuesday morning. At the same time, shares of Las Vegas Sands Corp. (NYSE: LVS) were lower by 2.3 percent while shares of Wynn Resorts, Limited (NASDAQ: WYNN) were lower by around 1.5 percent.Credit Suisse's Hong Kong based analysts, led by Kenneth Fong commented in a note that the gaming sector's fundamentals "continue to stay weak" with further downside likely. The analysts cited further declines in Macau's average daily revenue into March to MOP 675 million (approximately $84.45 million) from MOP734 million, post Chinese New Year."While we reckon that we shouldn't read too much into the a single data point, the persistent decline of daily run rate suggests that the sector's fundamentals are yet to bottom, in our view," Fong wrote. "In the near term, we expect a continued weakening trend on gradual closure of VIP rooms (hurting both VIP and premium mass segments) and slow premium mass revenue (dragged by the VIP segment)."Fong suggested that March's gross gaming revenue may drop as much as 36 percent to 43 percent year over year, worsening from the 35 percent drop seen in January to February 2015.The analyst suggested the sector is "unattractive" and if a slower-than-expected recovery takes place, the sector could "easily" see a sharp correction on a combination of earnings downgrades and multiple derating.

Deutsche Bank: New Casinos Wont Drive Demand

Karen Tang of Deutsche Bank commented in a note that 2015 will see gross gaming revenue in Macau fall at least 25 percent year over year. The analyst noted that from a historical perspective, junket agents typically report 20 percent to 30 percent new VIP players, however most agents could not recruit any new VIPs and their existing VIPs gambled much less.Tang also added that many premium mass players chose to travel to Europe, Japan and Korea instead as the Euro, Yen and Won all depreciated seven percent to 17 percent versus the Renminbi while many overseas countries relaxed visa policies for Chinese visitors. Meanwhile, many casinos in Macau were comping rooms to lower-tier players while the average minimum bets on Macau's mass gaming floors had fallen 20 percent from the peak.Bottom line, if supply doesn't drive demand, gross gaming revenue may not even recover in 2016, according to Tang.