Susquehanna Remains Positive On Casino Stocks Despite Difficult Environment In Macau

In a new report, analysts at Susquehanna updated their position on gaming companies MGM Resorts International MGM and Wynn Resorts Ltd WYNN following Las Vegas Sands Corp’s 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 increasigly competitive, resulting in lower margins and occupancy declines.

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.