Sands, Wynn Price Targets Lowered on Recent Macau Softness

Posted on: July 9, 2024, 03:23h. 

Last updated on: July 9, 2024, 03:23h.

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

Following a surprisingly soft June gross gaming revenue (GGR) report in Macau, an analyst modestly pared price targets on Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN), though he remains constructive on both casino stocks.

Wynn Macau, bribery, Oh Luen, 吴联, Li Kin-wang
The Wynn Macau casino hotel. An analyst lowered price targets on Sands and Wynn. (Image: Bloomberg)

In a new report to clients, Macquarie analyst Chad Beynon revealed new price forecasts on Sands and Wynn of $58 and $126, respectively, down from $60 and $128. For Sands, which is the largest Macau operator with five integrated resorts, that implies upside of 40% from the July 8 close. Beynon’s new price target on Wynn implies 12-month upside of 30%.

Overall, we believe consensus remains conservative, particularly for WYNN, which we believe can gain share. We continue to be bullish on the long-term growth prospects for Macau, and ranked Macau as our top sectors in our 2024 Gaming Prime,” wrote the analyst.

He maintained “outperform” ratings on both Sands and Wynn as well as MGM Resorts International (NYSE: MGM). MGM owns of 56% of MGM China, which runs two Macau casino resorts. Macquarie’s price target on that stock remained unchanged at $58.

Macau GGR Still Trending in Right Direction

While the June numbers came in below expectations, Macau’s GGR is trending in the right direction. For the second quarter, the combined figure was $7.1 billion, or 23% below the comparable stretch in 2019 — the last year prior to the coronavirus pandemic. That’s slightly better than first-quarter GGR, which was 25% below the same timeframe in 2019.

Annual visits to the Asian casino center trended higher in the decade ending 2019, peaking at 39.40 million in that year, but in 2023, that number was 28.21 million. That implies there’s still a long runway for Macau operators to get back to pre-pandemic norms and, if that goal is achieved, Macau gaming equities could benefit.

Still, investors have exercised little patience with Macau equities in 2024 as the group is lower by 7% while the S&P 500 is higher by almost 17%. LVS, MGM and Wynn are all members of that index.

“We expect July GGR to be ~$2.4 billion or -22% vs 2019. Looking at the 3- year pre-COVID average, July is typically +10% vs June, and we forecast July 2024E to be +8%,” added Beynon. “Looking ahead to 3Q, we are calling for $7.4 billion of GGR, which would imply +4% sequential, +20% year-over-year, and -17% vs 2019. Consensus currently calls for 3Q24E Macau EBITDA quarter-over-quarter to be as follows: LVS +3%, WYNN +1%, and MGM +0%.”

Mass Bettors, Non-Gaming Fare Could Lift Sands, Wynn

Integral to the broader investment thesis for Sands and Wynn is the ability of those operators to capture more share among mass market bettors in Macau and leverage non-gaming amenities there. Those are relevant pursuits because the enclave’s VIP market remains stagnant.

There’s evidence that the operators and rivals are accomplishing those objectives with Sands China proving particularly adept at capitalizing on non-gaming offerings while Wynn Macau has shown progress in pivoting to mass market players. Those could be among the reasons why Macau’s 2024 GGR figure will be solid.

“For 2024, we expect GGR of -20% vs 2019 (+28% YoY), or ~US$29.3bn, with mass continuing to run above pre-pandemic levels. With additional operator revenue growth in mass and non-gaming, we model for margin upside despite higher opex concessionaire commitments,” concluded Beynon.