Morgan Stanley Bangs Table: Macau Casino Market 'Under-Penetrated'

The meltdown in Macau casino stocks is a buying opportunity for long-term investors, an analyst said Wednesday.

Gaming stocks have slid an average of 24 percent since March, as a Chinese corruption crackdown amid a weak Asian economy cut Macau revenue growth to zero from an annual rate of 20 percent earlier this year.

But modeling Macau's outlook on the recent history of U.S. gambling, Morgan Stanley's Thomas Allen figures the Chinese casino mecca has years of growth in its future.

"Macau is still relatively early in its life cycle," Allen said.

Nevada was the only U.S. state where gambling was legal until New Jersey opened its first casino in 1978. Until the 2008 financial crisis, U.S. casino revenue posted annual compound growth of 20 percent in the ensuing 30 years, versus an average 3 percent annual growth for the U.S. gross domestic product.

In the same period, 21 states legalized some form of gambling and Las Vegas embarked on multiple waves of massive casino construction.

With a raft of huge construction projects now underway in Macau, Allen noted that "new supply in Las Vegas appeared to benefit, rather than hurt existing properties" as a matter of historical record.

Moreover, if Chinese spending on gambling as a percentage of its gross national product were to mirror that of the U.S., then Macau revenue excluding so-called high rollers would have been $36 billion last year, compared with its actual $15 billion, Allen said.

Macau's market is currently "under-penetrated" and a pick-up in revenue growth is likely next year according to Allen, who reiterated Overweight ratings on Las Vegas Sands Corp. (NYSE: LVS) and MGM Resorts International (NYSE: MGM). Both were largely unchanged Wednesday.