Speculation that the coronavirus outbreak could make its way to Macau and prevent gamblers from visiting the peninsula is weighing on operators’ stocks this week. Down 5.33 percent over the past few days, Las Vegas Sands (NYSE:LVS) is one of several names being pinched by the health scare.
On Tuesday, the first case of coronavirus was reported in Macau. A 52-year old female business traveler from Wuhan, a city in central China that has been ravaged by the respiratory illness, is currently quarantined in a hospital in the Special Administrative Region (SAR). But doctors believe she’s not an active transmitter of the viral infection.
LVS, the owner of five properties in the world’s largest gaming center, has been punished by the health scare and one analyst’s thesis that the company may not be able to deliver on robust mass market estimates this year.
There’s risk mass growth could come in even lower as net rooms growth will be essentially flat and hotel occupancies have surpassed Vegas, with the Macau tourism office suggesting last week that visitation could decline in 2020,” said Morgan Stanley Thomas Allen in a note to clients earlier this week.
Allen lowered his rating on LVS to “equal weight” from “overweight” with a $72 price target. That’s slightly above the stock’s Wednesday close at $69.45.
Different Point of View
Sands isn’t the only Macau operator feeling the adverse effects of the coronavirus headlines. Rivals Meclo Resorts (NASDAQ:MLCO) and Wynn Resorts (NASDAQ:WYNN) have each seen their shares decline more than six percent this week.
While comparisons are being drawn to the 2003 SARS outbreak in Hong Kong that killed nearly 300 people, Chinese health officials believe the coronavirus hasn’t reach those levels yet. Some analysts are saying if the respiratory illness can be quickly contained, recent weakness in Macau equities presents investors with a buying opportunity.
“Additionally, our Hong Kong team’s channel checks point to limited disruption, and while we remain cautious, we do not see large amounts of incremental risk at this point,” said Bank of America analyst Shaun Kelley in a note out earlier today.
Kelley has price forecasts on LVS, Melco and Wynn of $72, $34.10 and $160, respectively.
In an effort to prevent spreading of the coronavirus, Macau operators are using temperature-checking machines at all venue entry points and employees are wearing surgical masks.
Coming off slack revenue and visits last month, it’s in the gaming companies’ interests to allay visitors’ concerns about the virus, particularly with the two-week Chinese Lunar New Year festivities slated to start on Jan. 25.
Kelley, the Bank of America analyst, said channel checks indicate room reservations on the peninsula in advance of the New Year celebration have been strong, while data shows only sporadic cancellations following the coronavirus news.