Wynn Resorts, Limited (Nasdaq: WYNN) and other casino stocks traded lower on Monday after gaming revenue numbers from Macau came in lower than expected for the second consecutive month. Analysts say a slowdown in Macau is one of the biggest risks to Wynn investors.
Over the weekend, Macau, which is the world’s largest casino gambling hub, reported 12.5 percent gross gaming revenue growth for June, well short of consensus analyst estimates of 18 percent. May gaming revenue growth of 12.1 percent also missed analysts target of 17 percent.
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Bank of America analyst Shaun Kelley says the World Cup likely disrupted gambling activity to some extent, but there could be a more lasting headwind in Macau as well.
“We think financial tightening and fading policy stimulus from 2016 are finally starting to impact the market, which could weigh on VIP growth,” Kelley.
Wealthy VIP gamblers are particularly important for Wynn’s high-end Macau casinos. The slowdown in VIP revenue prompted Kelley to lower his 2018 earnings before interest, taxes, depreciation and amortization estimate for Wynn by 3 percent. Kelley also lowered his price target for Wynn stock from $205 to $180 on Wednesday and downgraded fellow Macau casino operator Las Vegas Sands Corp. ( LVS) from “buy” to “neutral.”
For the full second quarter, gaming revenue in Macau was up 17 percent, short of the 20 percent growth in the first quarter of 2018 and the fourth quarter of 2017. Last year was the first year of overall revenue growth in Macau since 2014 after a regulatory crackdown on money laundering in China led to a prolonged downturn in gaming activity. Macau gaming revenue is now up 18.9 percent year-to-date after a 19.1 percent gain in 2017.
Although the latest trends are troubling for Wynn investors, Kelley says the drop-off in May and June may still just be temporary.
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“We note that historically Q2 has sequential seasonality and that combined with some possible pull-forward in April due to the timing of the Labor Day holiday, trends could potentially rebound in August or beyond,” Kelley says.
In addition to the $180 target, Bank of America is maintaining its “neutral” rating for Wynn stock.
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Wynn Resorts, Limited Stock Slumps On Macau VIP Weakness originally appeared on usnews.com
