Las Vegas Sands, Wynn Targets Raised as Macau Stocks Look Attractive for Second Half

Posted on: March 15, 2021, 09:34h. 

Last updated on: March 15, 2021, 11:42h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Amid soaring levels of coronavirus vaccinations in the US and stimulus checks starting to hit some Americans’ bank accounts, investors are displaying ample enthusiasm for domestic gaming equities. But they shouldn’t sleep on Macau names, such as Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN).

Macau stocks
Wynn Palace in Macau, pictured above. An analyst is bullish on stocks with exposure to that market. (Image: CNBC)

That’s the sentiment of Stifel analyst Steven Wieczynski, who, in a note to clients, says operators with heavy Macau exposure “could represent some of the most compelling ideas for the remainder of 2021.” LVS and Wynn fit that bill as owners of five and two integrated resorts, respectively, in the world’s largest gaming center.

While predicting when the Macau market will improve and start to show signs of material growth, we continue to believe in the long-term resiliency of the market, and believe it’s a matter of when, not if, the market returns to normal/accelerated levels,” said the analyst.

Analysts long opined that Macau will recover from the effects of the coronavirus pandemic more rapidly than Las Vegas.

But the combination of pent-up demand and government cash is putting the spotlight on stocks with Strip exposure. Conversely, some of the luster is coming off Macau equities, as China drags its heels on making the individual visit scheme (IVS) application process more efficient, among other factors.

LVS, Wynn Offer Upside Potential

Gaming stocks are on fire to start 2021, but Sands and Wynn — the two US-based companies generating the biggest percentages of their revenue in Macau — are trailing rivals.

LVS is up just 4.78 percent year-to-date, while Wynn is up 21.47 percent. MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NASDAQ:CZR), the two largest Strip operators, are up an average of almost 30 percent.

“Investors have focused more of their attention around regional gaming names (especially ones with ties to sports betting) over the last nine months, given the strong recovery of domestic brick and mortar casino assets, and have somewhat ignored Macau operators, given the political/macro risks, as well as the continued head fakes around the market improving,” said Wieczynski.

Still, the analyst lifts his price target on LVS to $77 from $68, while boosting his forecast on Wynn to $157 from $135.

Betting on Macau Stock Rally

With the second half of 2021 just a few months away, the Stifel analyst sees multiple factors that can spark upside for the likes of LVS and Wynn.

Those include “muted” investor expectations, which could pave the way for those operators to beat reserved estimates. Additionally, sequential improvements should materialize, providing a level of comfort for market participants to get reacquainted with Macau names. Visitation is perking up, and operators’ focus on costs forced by the pandemic could lead to better efficiencies and profitability over the long-term.

“As we have said before, we continue to believe the Macau market is a quasi-monopoly that will exhibit strong growth prospects as China returns to a more normalized environment,” said Wieczynski. “While the recovery trajectory remains an unknown, we believe the market should recover much quicker than some other gaming markets around the world, given the favorable demographics that surround Macau.”