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'Distinctly Positioned' Las Vegas Sands Is Morgan Stanley's Top Gaming Pick

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March 31, 2018 8:55 am
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Las Vegas Sands Corp. (NYSE:LVS) is Morgan Stanley’s new top pick in the gaming sector.

Earlier this week, Morgan Stanley raised the price target on Overweight-rated MGM Resorts International (NYSE:MGM) from $40 to $41. For Equal-Weight-rated Wynn Resorts, Limited (NASDAQ:WYNN), the firm lifted its price target from $194 to $197. Morgan Stanley maintained an Overweight on Las Vegas Sands and raised the price target from $82 to $83.

Las Vegas Sands Leads In Mass Market Gaming

Las Vegas Sands is "distinctly positioned" in the U.S. Consumer Discretionary sector to drive a 10-percent, three-year EBITDA CAGR on low leverage and pay an "attractive" dividend yield, analyst Thomas Allen said in a note. 

Strength in the Macau market is continuing, with year-to-date visitation and gross gaming revenue both outperforming in 2018, the analyst said.  

Morgan Stanley's 2018 gross gaming revenue forecast is unchanged at 16 percent, but the firm is assuming a greater mass mix, which results in higher EBITDA, Allen said. 

With mass market gaming growth outpacing VIPs, Las Vegas Sands has a leading position in the category, which also led to its top pick status, according to Morgan Stanley. The sell-side firm raised its mass market gaming forecast for Macau to from 12 to 15-percent growth and cited three reasons for the move: 

  • January and February visitation is up 8 percent, with Chinese visitors up 15 percent and overnight visitors up 11 percent.
  • January and February 2018 gross gaming revenue has mass gaming up 23 percent against prior first-quarter estimates of 11 percent.
  • Mass market revenue grew 18 percent in the fourth quarter.

'Warming Up To WYNN'

With Wynn Resorts having the most exposure to Macau, the strength in the region bodes well for a company in a state of flux, given its management shakeup and uncertainties regarding its new Massachusetts property, Allen said. 

“We are warming up to WYNN again given it has the most exposure in our coverage to the attractive Macau market and likely continues to have the opportunity to outperform through its ramping Cotai property,” he said.

Wynn has done a "very good job" diminishing legal and regulatory overhangs, the analyst said — but some regulatory risk continues to linger, particularly in Massachussets, Allen said.

The company's outperformance in 2017 was helped by strength in VIP, "which we no longer see to be the case," he said. 

Related Links:

Vegas Strip Gaming Rebounds In February

The Casino Stock Gamble: Telsey Initiates Coverage On Wynn, Las Vegas Sands, Penn National

The Marina Bay Sands casino in Singapore. Photo by Someformofhuman/Wikimedia. 

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