Posted on: September 22, 2023, 03:59h.
Last updated on: September 22, 2023, 03:59h.
China’s economic concerns and recent typhoon-related closures of gaming venues in Macau have caused a decline in Macau casino stocks since August. However, one analyst believes it may be a good time to reconsider investing in the group.
In a recent report, Stifel analyst Steven Wieczynski suggests that the concerns about China’s economy are already reflected in the stock prices of Macau casino operators. This indicates that there may be opportunities for investment based on current valuations.
Pent-up demand remains robust, and we believe the upcoming Golden Week Holiday (late-September to early-October) will provide evidence of just that,” observed the analyst. “Valuations remain overly compelling with shares of Macau-centric stocks trading at 25%+ discounts to normal trading ranges.”
Shares of Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN), two of the US-based Macau concessionaires, have been declining in the past month. Over the same period, Sands’ shares have decreased by over 15%, while Wynn Macau’s parent shares are down 4.70%.
Consider Sands and Wynn for Macau Casino Stocks
Wieczynski lowered the price targets for Sands and Wynn to $69 and $135, respectively, but there is still significant upside potential for both stocks. Wynn closed at $91.56 today, while Sands settled at $45.79.
Both companies are expected to benefit as Macau’s gross gaming revenue (GGR) approaches pre-coronavirus levels this year. Standard & Poor’s recently estimated that GGR will reach 85% to 90% of pre-coronavirus levels this year, up from their previous forecast of 75% to 85%. S&P predicts a full recovery by 2024. This is particularly important for Sands, which, along with rival Galaxy Entertainment, attracts mass and premium-mass bettors to Macau.
Although September’s GGR is expected to be lower due to the recent closures caused by the typhoon, the upcoming Golden Week holiday could provide an opportunity to refute concerns about China’s economic weakness.
“We believe the setup is compelling for Macau-centric stocks heading into 2H23/2024,” added Wieczynski. “Stocks have significantly underperformed our coverage universe not only since the beginning of the year but more recently over the last two months. China macro fears are the primary culprit of the recent weakness in shares, in our view.”
Preference for Wynn
While Wieczynski has a positive view on Sands China parent Las Vegas Sands, he prefers Wynn due to its exposure to premium mass clients, who are more sensitive to economic conditions compared to mass market bettors.
In both cases, Sands and Wynn are trading at significant discounts compared to their historical averages, making them attractive options for investors looking to enter the market.
“LVS is currently trading at a 2.5 turn discount to their historical average while WYNN is trading at a 3x discount to their previous trading average,” concluded Wieczynski.