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Morgan Stanley Is More Positive On Vegas Than On Macau

Morgan Stanley Is More Positive On Vegas Than On Macau

Forbes once described the Macau gaming market as being "Vegas on steroids." While this may be true, analysts at Morgan Stanley are now speculating that the Las Vegas gaming market will see higher growth rates than Macau.

In a note to clients on Tuesday, Thomas Allen of Morgan Stanley lowered his 2014 and 2014 Macau growth estimate from 12 percent to six percent in 2014 and from 12.5 percent to 11 percent in 2015. At the same time, the analyst is expecting strength to continue in to the second half of 2014 into 2015.

Macau Growth Lowered

Allen visited the Macau region and believes that growth in the gaming market will be more difficult to come by until supply growth resurfaces in mid-2015. For the second half of 2014, the analyst expects VIP trends to continue declining by mid-single-digit to double digit declines as the macro-economic difficulties in China will play an impact.

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On the mass side, Allen is projecting growth will continue at the 17 percent level seen in July. This is significant as July was the first time in five years the mass market growth was calculated at less than 20 percent.

Recent changes to transit visa rules has impacted both VIP and mass players' ability to physically get themselves to Macau as often as the casino operators may have preferred. Additionally, the World Cup appeared to have an impact on both VIP and mass trends. Many casino junkets also act as bookmakers, so they were agnostic on whether their clients wage on a soccer match or at the baccarat tables.

According to Allen, the VIP market has also been negatively impacted due to many players' collateral being tied up in the mainland China market which has slowed down as of late.

However, Allen noted that the Macau structural growth store remains intact and the analyst remains positive on the group for the longer term. Short-term issues throughout the remainder of 2014 and 2015 do not change the growth story.

“We continue to believe Macau is a long-term China penetration story, and we expect new property openings in mid-2015 and continued infrastructure improvements to drive the next wave of market expansion,” Allen wrote, adding that the opening of new properties in the Cotai Strip may also gravitate players towards the newer rooms in the region.

Vegas Growth Reaffirmed

While visiting the Vegas Strip and holding meetings with key market participants, Allen remains confident in the Vegas growth story. Room nights are trending up year over year for the next fourth quarters, including the first quarter 2015 with difficult comps.

Air capacity constraints are “overdone,” as the analyst notes that most of the lost supply was connecting flights.

The SLS opening and recent concert performances by Rita Ora and Iggy Azalea confirm the “millenial'izing” of the Strip in which younger people visit the region for shorter periods and spend more money on non-gaming activities.

Allen also adds that some of the casino operators he interacted with said that there has been a recent pick-up in VIP play from Chinese customers, suggesting the possibility of a shift in play from Macau to Vegas.

“The market felt very busy, especially for mid-August.” Allen wrote. “Market participants uniformly agreed that the market continues to feel strong and that the the outlook, at least for the next 12 months, was promising.”

Updated Estimates And Price Targets

Shares of Las Vegas Sands (NYSE: LVS) were reiterated with an Outperform rating with a price target lowered to $76 from a previous $83. The analyst notes that Las Vegas Sands remains the best positioning company to benefit from a long-term mass and premium mass growth story.

Shares of MGM Resorts (NYSE: MGM) were reiterated with an Overweight rating with a price target lowered to $30 from a previous $31. The analyst notes that MGM is well positioned to benefit from a growing Vegas market with exposure to the long-term Macau structural growth story.

Shares of Wynn Resorts (NYSE: WYNN) were reiterated with an Equal-weight rating with a price target lowered to $200 from a previous $205. The analyst notes that Wynn's EBITDA will grow in the high single-digits over the next few years driven by Macau market growth (with a new Cotai property set to open 2017) with exposure to the growing Vegas market.

Latest Ratings for LVS

Oct 2020JefferiesMaintainsBuy
Oct 2020Morgan StanleyMaintainsEqual-Weight
Oct 2020Deutsche BankMaintainsBuy

View More Analyst Ratings for LVS
View the Latest Analyst Ratings


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