Casino stocks took a big hit following the release of gaming data from Macau showing lackluster results. Shares of Melco Resorts & Entertainment (MLCO), MGM Resorts International (MGM) and Wynn Resorts Ltd. (WYNN) all tumbled on the news, but a number of analysts believe the selloff was overdone and that investors with a longer-term perspective could be rewarded for buying in at these depressed prices, according to Barron’s.
Instinet analyst Harry Curtis, while adjusting his price targets lower for both Melco and MGM, sees them rising by 27% and 25%, respectively. Stifel analyst Steven Wieczynski, on the other hand, raised his price target for Wynn, implying 26% upside. (To read more, see: 3 Gambling Stocks That Will Beat The House: Morgan Stanley.)
The data that sent the gaming stocks tumbling indicated a slowdown in gross gaming revenue from Macau, the autonomous region on China’s south coast known for its big casinos and shopping malls. Those gaming revenues rose by just 12.5% year-over-year in June, only slightly higher than the 12.1% gain in May, and significantly lower than the 22% during the first four months of the year. On the year, gross gaming revenue is up only 18.9% year-over-year, compared to last year’s 19% growth.
The news was enough to send Melco shares down 11% from the end of June through the first week of July before rebounding slightly; MGM fell nearly 4% before making a comeback; and Wynn fell as much as 9% before bouncing back. Year to date, all three stocks are down. (To read more, see: Macau Resurgence Lifts Wynn Resorts Stock to 3-Year High.)
Weaker Outlook Reflected in Prices
While recognizing that gross gaming revenue growth and earnings forecasts are likely to be lower for the rest of the year due to plateauing volume for casinos’ VIP business, Curtis believes that with the selloff complete, the companies’ share prices now fully reflect that weakened outlook. From a longer-term perspective, these stocks provide bargain opportunities.
Wieczynski also holds the view that the weaker growth outlook is now priced into Wynn’s stock price after the selloff. He believes there are still good reasons to buy the stock, including lower headline risks, expanding returns on invested capital and expanding margin possibilities, according to Barron’s.