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Casino Operators In Free Fall
Slowing consumer spending has made investors uneasy about the prospect of casino operators such as Wynn Resorts (Nasdaq:WYNN), MGM Mirage (NYSE:MGM) and Las Vegas Sands (NYSE:LVS), causing their stock prices to free fall with the market. Gas prices, increased travel expenses on airlines, Chinese unease about gambling in Macau and a weakening economic picture in the U.S. have led many to feel casino operators will be unable to meet revenue and earnings targets.
Wynn Resorts
Wynn Resorts will release its earnings report for the previous quarter on October 30, which should be an indication of the overall weakness or health of the industry. Investors should note that Wynn is actually the strongest of the three operators mentioned and could therefore outperform both MGM Mirage and Las Vegas Sands.
Last week was a mixed bag for casino operators as Jake Fuller of Thomas Weisel Partners LLC upgraded the companies on Wednesday, October 15, to "overweight" from "market weight", while Steven Kent of Goldman Sachs slashed price targets of the same companies on Thursday. Fuller based his upgrade on an improved credit environment in 2010 and 2011, feeling that the stocks already have priced in the poor conditions of 2009. Kent lowered price targets on MGM Mirage to $17 a share and on Las Vegas Sands to $25 a share in additional to lowering Wynn Resorts' targets. He said consumers are weakening further which will make earnings targets hard to achieve. (To learn more, read What To Know About Financial Analysts.)
Wynn's earnings estimates increased steadily over the past 90 days to only be dropped back down to 63 cents per share this past week according to numbers given by Thompson Financial Network. Wynn's full-year earnings had begun the quarter at $3.07 per share and had risen to $3.36 two weeks ago, but this past week, analyst lost their optimistic outlook for the company and brought back down their estimates to $3.16 a share for the current year.
MGM Mirage
Investors have been stung by the continued drop in stock price of MGM Mirage. MGM Mirage is the weakest of the three operators in my opinion and has fallen some 84% in the past 52 weeks. In his upgrade of MGM Mirage and of Las Vegas Sands, Fuller said these two worst performers had the most upside when the economy did turn around. As an investor, waiting for the turnaround could be painful.
Earnings estimates continue to decline along with revenue for MGM Mirage. Revenue is estimated to decrease around 3.5% from year ago reports, while earnings are dropping 33% year over year. Last week analysts decreased their earnings expectations to only 32 cents per share. 90 days ago the figure sat at 40 cents per share.
Las Vegas Sands
In a report released this past week by Nevada's Gambling Control Board investors learned that August gambling revenue in Las Vegas Nevada fell 8.1% when compared to a year ago. This reduction in revenue happened despite the help of an additional weekend day and an additional Labor Day weekend day falling into the month compared to the calendar in 2007. Les Vegas Sands has some very good revenue expectations in the area of $4.4-5 billion according to analysts opinions on Thompson Financial Networks. This is an expected 55% year-over-year growth in sales which could fall slightly now that there is a clear sign of falling revenue for all operators in the Nevada area. And the company's earnings per share expectations for the current financial year are weakening, falling to the current expectation of only 42 cents from 87 cents one year ago.
The company is currently seeing reduced earnings estimates for the current quarter, the next quarter in December, and the yearly estimates. Las Vegas Sands has been unable to meet or beat quarterly earnings estimates the past four quarters, missing by 25% last quarter and 80% the prior period ending March 2008. This inability to reach expectations in the previous quarters leaves current quarterly estimates in question and makes investors unwilling to bet on the outcome of their next report. (For related reading, see Strategies For Quarterly Earnings Season.)
Conclusion
Casino operators find themselves in a difficult position with a weakening economy in America, high travel expenses due to gasoline prices, softening consumer spending, and a Chinese government uneasy about any success in Macau. MGM Mirage, Las Vegas Sands, and Wynn Resorts have seen their stock prices and earnings estimates decline and should see continued weakness in 2009 - with possible strength in 2010 and 2011.
Wynn Resorts
Wynn Resorts will release its earnings report for the previous quarter on October 30, which should be an indication of the overall weakness or health of the industry. Investors should note that Wynn is actually the strongest of the three operators mentioned and could therefore outperform both MGM Mirage and Las Vegas Sands.
Last week was a mixed bag for casino operators as Jake Fuller of Thomas Weisel Partners LLC upgraded the companies on Wednesday, October 15, to "overweight" from "market weight", while Steven Kent of Goldman Sachs slashed price targets of the same companies on Thursday. Fuller based his upgrade on an improved credit environment in 2010 and 2011, feeling that the stocks already have priced in the poor conditions of 2009. Kent lowered price targets on MGM Mirage to $17 a share and on Las Vegas Sands to $25 a share in additional to lowering Wynn Resorts' targets. He said consumers are weakening further which will make earnings targets hard to achieve. (To learn more, read What To Know About Financial Analysts.)
Wynn's earnings estimates increased steadily over the past 90 days to only be dropped back down to 63 cents per share this past week according to numbers given by Thompson Financial Network. Wynn's full-year earnings had begun the quarter at $3.07 per share and had risen to $3.36 two weeks ago, but this past week, analyst lost their optimistic outlook for the company and brought back down their estimates to $3.16 a share for the current year.
Investors have been stung by the continued drop in stock price of MGM Mirage. MGM Mirage is the weakest of the three operators in my opinion and has fallen some 84% in the past 52 weeks. In his upgrade of MGM Mirage and of Las Vegas Sands, Fuller said these two worst performers had the most upside when the economy did turn around. As an investor, waiting for the turnaround could be painful.
Earnings estimates continue to decline along with revenue for MGM Mirage. Revenue is estimated to decrease around 3.5% from year ago reports, while earnings are dropping 33% year over year. Last week analysts decreased their earnings expectations to only 32 cents per share. 90 days ago the figure sat at 40 cents per share.
Las Vegas Sands
In a report released this past week by Nevada's Gambling Control Board investors learned that August gambling revenue in Las Vegas Nevada fell 8.1% when compared to a year ago. This reduction in revenue happened despite the help of an additional weekend day and an additional Labor Day weekend day falling into the month compared to the calendar in 2007. Les Vegas Sands has some very good revenue expectations in the area of $4.4-5 billion according to analysts opinions on Thompson Financial Networks. This is an expected 55% year-over-year growth in sales which could fall slightly now that there is a clear sign of falling revenue for all operators in the Nevada area. And the company's earnings per share expectations for the current financial year are weakening, falling to the current expectation of only 42 cents from 87 cents one year ago.
The company is currently seeing reduced earnings estimates for the current quarter, the next quarter in December, and the yearly estimates. Las Vegas Sands has been unable to meet or beat quarterly earnings estimates the past four quarters, missing by 25% last quarter and 80% the prior period ending March 2008. This inability to reach expectations in the previous quarters leaves current quarterly estimates in question and makes investors unwilling to bet on the outcome of their next report. (For related reading, see Strategies For Quarterly Earnings Season.)
Conclusion
Casino operators find themselves in a difficult position with a weakening economy in America, high travel expenses due to gasoline prices, softening consumer spending, and a Chinese government uneasy about any success in Macau. MGM Mirage, Las Vegas Sands, and Wynn Resorts have seen their stock prices and earnings estimates decline and should see continued weakness in 2009 - with possible strength in 2010 and 2011.
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