Wynn Resorts, Other Macau Stocks Look Really Cheap, Poised to Rally in 2020, Says J.P. Morgan Analyst Greff

Posted on: December 5, 2019, 11:34h. 

Last updated on: December 5, 2019, 12:04h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Wynn Resorts, Ltd. (NASDAQ:WYNN) and other gaming companies with significant Macau footprints have seen their share prices sapped in recent months due to declining VIP revenue on the peninsula. But at least one Wall Street analyst sees a more sanguine environment for operators there in 2020.

In a note to clients out Thursday, J.P. Morgan analyst Joseph Greff acknowledged that December will likely be another trying month for gross gaming revenue (GGR) on the Special Administrative Region (SAR). But he added that Macau equities are poised to bounce back in 2020.

Macau stocks are now well-positioned to rally heading into 2020 and it is unlikely that all of the negative events this year will recur in 2020,” Barron’s reports, citing Greff’s note.

Among the factors hindering GGR in the world’s largest gaming hub this year are the slowing Chinese economy, that country’s trade spat with the US, and pro-democracy demonstrations in Hong Kong. Last month, Macau gaming revenue slumped 8.5 percent on a year-over-year basis to $2.8 billion, marking the worst month of this year.

Expectations are in place that December won’t be much better. As Casino.org recently reported, Beijing has been limiting visas to Macau in advance of the 20^th anniversary celebration later this month commemorating the handover of the region to China from Portugal. Those visa controls are especially bothersome for operators such as Wynn that rely on VIP gamblers, because those players visit Macau more frequently than their mass market counterparts.

Finding Value

Some analysts have been trimming estimates, price targets, and ratings on Wynn Resorts due to that operator’s dependence on top-tier Macau gamblers. But Greff believes that after the recent struggles, there’s value to be had in stocks of companies with exposure to the SAR.

Melco Resorts (NASDAQ:MLCO), Wynn Resorts, and Las Vegas Sands (NYSE:LVS), three of the largest Macau concessionaires, each appear inexpensive, and if those stocks move back to historical multiples, gains could be significant.

If these stocks were to simply revert to their historical multiples, Melco could rise as much as 35 percent, Wynn by 15 percent, and Las Vegas Sands up by 3 percent,” Barron’s notes, citing Greff.

LVS is the best-performing member of that trio this year, slightly outpacing Wynn, due in large part to the former’s lower dependence on VIPs. The operator of five Macau casinos has, in the eyes of many on Wall Street, the best positioning among mass and premium mass market visitors to the peninsula.

Greff’s Picks

For 2020, the J.P. Morgan analyst is most enthusiastic about Melco and Wynn among Macau operators. He rates both names “overweight” and his price targets on the stocks imply upside potential of 30 percent and 23 percent, respectively.

A new leadership regime will be installed in Macau later this month, stoking chatter that next year could bring movement on the license renewal front. All six of the license holders on the peninsula see their permits expire in 2022.