Macau Gaming Stocks Now In-Line With 2017 Expectations

The long-term growth story in Macau remains intact, but share prices of casino operators may already fully reflect 2017 earnings. According to Bernstein analyst Vitali Umansky, the huge run Macau stocks have been on in the past year now has the stocks trading in-line with medium-term growth expectations in Macau.

“While we continue to have a positive outlook on the Macau gaming industry, for most of our coverage universe, valuations have largely caught up with near and medium-term prospects, especially in light of continued risks the sector faces (tied largely to China policy and regulatory impact on Macau and unsustainable drivers helping VIP),” Umansky explained.

Analyst's Take

Bernstein is projecting mass market gross gaming revenue (GGR) growth of +12 percent in 2017 and VIP GGR growth of +3 percent. For the casinos, the firm sees +14 percent EBITDA growth in 2017.

In the long-term, Bernstein is projecting Macau GGR compound annual growth (CAGR) of +8 percent and EBITDA CAGR of +12 percent.

Given the roughly 60 percent rally in Macau casino stocks in the past year, Bernstein has downgraded the China unit of MGM Resorts International (NYSE: MGM) from Outperform to Market Perform.

Bernstein’s top two Macau plays are Outperform-rated Melco Crown Entertainment Ltd (ADR) (NASDAQ: MPEL) and the China unit of Wynn Resorts, Limited (NASDAQ: WYNN).

The firm maintains a Market Perform rating on Las Vegas Sands Corp. (NYSE: LVS).

Disclosure: The author is long MPEL.