Morgan Stanley Still Bearish On Macau Stocks

Macau casino stocks continue to present investment risk and won't regain their attraction until at least the middle of 2015, an analyst said Wednesday.

Stocks in the sector have ticked up in the past several weeks as investors seemed to believe that sentiment toward the sector had hit bottom.

"Few want to be late, but being too early is a risk," Morgan Stanley's Thomas Allen said.

November's total Macau gambling revenue fell 20 percent from a year earlier to $3.04 billion.

Morgan Stanley cut its Macau market forecast three times during 2014 because of a corruption crackdown by the Chinese government as well as a slowing regional economy and related troubles in the gambling junket travel business in China.

"We have no confidence these issues won't get worse," Allen said.

Best-positioned over the long term, according to Allen, is Las Vegas Sands Corp. (NYSE: LVS), given its high exposure to the relatively stable mass market segment of the Macau business and its high proportion of hotel rooms in the city.

But although Sands as well as competitors Wynn Resorts, Limited (NASDAQ: WYNN) and MGM Resorts International (NYSE: MGM) have seen substantial share-price declines this year, their value relative to projected earnings remains high, Allen said.

"Forward multiples look similar to their levels at the end of 2013: slightly elevated," Allen said.

MGM is off nearly 12 percent year-to-date and closed at $20.72, down 3.6 percent; Sands is down nearly 31 percent this year, closing at $54.52, off $2.8 percent.

Wynn has seen a 24 percent decline since January and closed Wednesday at $146.75, down 6.3 percent.