Macau casino stocks traded higher on Friday despite a huge drop-off in gross gaming revenue in the month of March.
What Happened? On Friday, Macau reported March gross gaming revenue of MOP3,672bn ($455 million), down 55.8% year-over-year and 52.7% from February levels. The sharp decline was widely expected as China deals with ongoing widespread outbreaks of COVID-19.
Why It's Important: The March numbers were roughly in-line with expectations, triggering a modest relief rally in U.S.-listed Macau casino operators. Melco Resorts & Entertainment Ltd MLCO shares traded higher by 3.3% on Friday, while Las Vegas Sands Corp. LVS gained 1.2% and Wynn Resorts, Limited WYNN shares rose 1%.
On Friday, Bank of America analyst John Murphy said investors shouldn't expect the situation in Macau to improve significantly in the near future given visitors entering Macau from Zhuhai still need to present negative COVID test results obtained within 24 hours and there are still more than 5,000 new daily cases being reported in Shanghai despite an ongoing lockdown.
"We believe this will continue to drag the GGR recovery in April/May until [the] situation improves," Murphy said.
Macau gaming stocks were resilient on Friday, but the positive trading action is an exception to the rule. In the last 12 months, Melco shares are down 60.3%, Sands shares are down 35.1% and Wynn shares are down 35.6% overall.
In the longer-term, Murphy said the Macau sector group has attractive valuations and GGR should improve rapidly once the outbreak subsides.
Bank of America has a Buy rating and $14 price target for Melco, an Underperform rating and $40 target for Las Vegas Sands and a Neutral rating and $100 price target for Wynn.
Benzinga's Take: For now at least, Macau appears to be the high-risk, high-return casino stock play. Investors looking for a lower-risk approach to the casino industry should consider more U.S.-focused casino and gambling stocks, such as Caesars Entertainment Inc CZR, Vail Resorts, Inc. MTN and Penn National Gaming, Inc PENN.
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