Macau performance boosts buy rating among Las Vegas-based gaming giants

July 12, 2023 4:22 PM
Photo: Shutterstock
  • Buck Wargo, CDC Gaming Reports
July 12, 2023 4:22 PM
  • Buck Wargo, CDC Gaming Reports

Buoyed by the ongoing recovery in Macau, a Wall Street analyst has maintained his buy ratings for Las Vegas Sands, Wynn Resorts, and MGM Resorts International.

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Gaming companies will start releasing their earnings later this month and analysts are keeping an eye on the online- gaming sector.

John DeCree with CBRE said in a note to investors that thanks, in part, to resuming coverage on Galaxy Entertainment, SJM Holdings, and Melco Resorts, CBRE updated its estimates for the rest of its Macau coverage. With the improvement in gross gaming revenue throughout the second quarter, they updated their estimates for 2023 and 2024.

For Las Vegas Sands, CBRE is raising its second-quarter adjusted EBITDA estimate to $911 million from $844 million and moderating their fiscal-year 2023 EBITDA estimate to $3.64 billion from $3.67 billion. The fiscal-year adjusted-EBITDA estimate is $4.66 billion from $4.58 billion. The fiscal-year-2024 Macau adjusted-property EBITDA estimate goes to $3.01 billion from $2.93 billion.

“We see continued growth in Singapore from improving inbound visitation and substantial growth in capital expenditures,” DeCree noted. “We also expect an accelerating recovery for Las Vegas Sands in Macau, as it ramps hotel capacity back to more normalized levels.”

DeCree said they’re raising their adjusted EBITDA estimate for MGM Resorts to $709 million from $645 million and the fiscal-year-2023 adjusted-EBITDA estimate to $2.96 billion from $2.8 billion. Fiscal 2024 adjusted EBITDA has been moved up to $2.87 billion from $2.8 billion. It raised the 2024 Macau adjusted-property EBITDA to $844 million from $746 million.

“MGM has tailwinds across the globe, including the reopening in Macau, convention and international recovery in Las Vegas, impending digital profitability, a transformational greenfield opportunity in Japan, and possibly a development in downstate New York,” DeCree said. “Combine this with a fortress balance sheet and a robust share-repurchase program and MGM is a compelling buy, particularly for long-oriented investors looking to get in on long-term value creation at attractive levels.”

As for Wynn, CBRE is raising its second-quarter consolidated adjusted-EBITDA estimate to $445 million from $408 million. It redid its 2023 EBITDA estimate to $1.8 billion from $1.72 billion and its 2023 adjusted EBITDA to $2.23 billion from $2.15 billion. It raised its 2024 Macau adjusted-property EBITDA to $1.36 billion from $1.28 billion.

“We continue to recommend Wynn, based on attractive relative valuation, with the shares trading at 8.4x our fiscal-year-2024 EBITDA estimate, which is a material discount to historical levels,” DeCree said. “We contend the market underappreciates Wynn’s recovery in Macau, the sustainability of earnings in Las Vegas, the real estate value of its portfolio, and the company’s lucrative development project in the UAE.”

David Katz with Jefferies Equity Research also released a note to investors this week. Asia gaming, it said, “presents an early-stage recovery opportunity” and Tthe June gaming revenue has come in as expected, which has been neutral for related stocks.

Macau visitation is expected to be robust through July, before the quieter period through the October Golden week holiday, Katz said.

“The key question remains the mix of gross gaming revenue in recovery absent the lower-margin, high-volume, VIP business,” Katz said. “We favor Sands China and Galaxy among Hong Kong names and MGM among U.S. names with exposure.”

In his other note, Katz said the development of U.S. online gambling remains a key area of investor focus, with leading operators all transitioning into profitability at some point in 2023. Second-quarter results over the next few weeks will amplify interest and Katz said they anticipate further upgrades to U.S. expectations.

“We continue to believe that the size of the longer-term profit prize is underappreciated and reiterate our preference for Flutter, with Flutter’s U.S. listing intentions also likely to open a catalyst of increased investor interest.”

From the U.S. perspective, Katz said they’re focused on mergers and acquisitions as well, with deals this year between NeoGames and Aristocrat and PointsBet and Fanatics and more to come. “Meanwhile, the set-up for DraftKings from an earnings and profitability perspective remains favorable.”

On the gaming-equipment and technology front in the U.S., a focus on catalysts remains high among Jefferies’ coverage, Katz said. IGT indicates that “it is committed and optimistic on its strategic alternatives for its gaming business, which should be a desirable asset in our view.” Second, Light & Wonder is in the midst of replacing its chief financial officer, who is moving on, while Wall Street continues to evaluate the merits and possibilities of the company’s $1.4 billion EBITDA guide for 2025.

“Finally, the focus on Everi and its recent product-momentum deceleration remains high, as the shares appear undervalued,” Katz said.