It's a tale of two cities united by games of chance.
On side of the world is Macau, an autonomous region on the south coast of China and the world's largest gambling destination.
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Gambling tourism is Macau's biggest source of revenue, making up about half the economy.
Last year, Macau generated nearly $23 billion in gambling revenue, a 333.8% year-on-year increase and the best gambling-revenue year since 2019, when casinos collected $36.6 billion, iGaming Business reports.
More than 7,000 miles away, there's Las Vegas, the most populous city in Nevada and a gambling and entertainment mecca that has played host to the biggest names in show business.
Las Vegas Strip casino win revenue in July fell 15% year-over-year to $709.2 million, while the three-month win revenue from May 1 to July 31, fell 3% to $2.2 billion from a year earlier, the Nevada Gaming Control Board reported in its monthly figures.
Still, the Neon Capital of the World, plays second fiddle to Macau, which overtook the Las Vegas Strip in gambling revenue in 2006.
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Analyst cites travel demand softness
While the best times may differ for each town, both most likely saw the worst of times during the Covid-19 pandemic shutdown.
Bank of America Securities, which is hosting 14th Annual Gaming & Lodging Conference on Sept. 5, cited several factors facing the gambling sector, including leisure-travel softness and consumer-spending concerns, Federal Reserve interest-rate cuts and the approaching presidential election, Macau volatility, and business travel picking up for fall.
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"Travel demand saw material softness in Q2 with our entire Lodging coverage guiding down [revenue per available room]," the firm said. RevPAR is an industry measure of the rooms being sold at a hotel and how much revenue is being generated from those bookings.
"Adding to this are concerns with low-end airlines, theme parks, timeshare and international travel, too," B of A said. "But how much is normalization vs. how much is fundamental and actual weakness?"
Regarding Macau, B of A said valuations are among the cheapest in history, "but the macro is also the weakest we have seen at all but the absolute depths of Covid."
"With concerns about money exchange and an upcoming local election cycle, can operators including Las Vegas Sands (LVS) , Wynn Resorts (WYNN) , Melco Resorts & Entertainment (MLCO) and MGM Resorts International (MGM) do anything to change the narrative on China?" the investment firm asked.
Authorities in Macau have clamped down on unlicensed money changers who swap currencies for gamblers without a proper license and who play a key role in the gambling industry, Nikkei Asia reported on Sept. 1.
In addition, the city's chief executive, Ho Iat Seng, in August made a surprise announcement that he would not seek a second five-year term in the election scheduled for Oct. 13. He cited health reasons.
Sam Hou Fai, a former president and judge at the Court of Final Appeal, is the only candidate for the job so far, and he has reportedly said that the development of the city's casino industry has been “disorderly” and “barbaric.”
Other analysts have been sharing their views on the state of the gambling sector.
Jefferies analysts said that although Macau's August gross gaming revenue — the total amount of money wagered by players minus the winnings paid out —demonstrates strength following seasonal weakness in July, its expectations remain unchanged, according to TheFly.
The investment firm continues to be measured on the region as the heavy promotional environment challenges operators and anticipates that valuations remain compressed due to economic weakness in China.
Investment firm concerned about 'plateauing growth in Macau'
Looking ahead, Jefferies said it remained focused on the October Golden Week holiday, which could potentially provide another catalyst for the market/stocks.
JPMorgan affirmed an overweight rating on Wynn Resorts with a $101 price target.
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The firm told investors in a research note Wynn's share price is back to March 2006 levels, adding "this is not a typo."
"We took the last week or so of August to think of scenarios that gaming and lodging investors might not necessarily be considering," the firm said, "given that macro considerations have trumped micro-/company-/industry-specific ones, which has been the case for a while now."
In the case of Wynn, Las Vegas Sands, Melco Resorts and, to an extent, MGM, JP Morgan said, "absolutely apathetic to negative sentiment on Macau has caused these stocks to be sizable underperformers — also, for a while now."
In the mid-$70s, Wynn represents a good risk/reward balance, with a value that reflects "reasonably low to fair" value for Wynn's Las Vegas and Encore Boston Harbor asset values and "hardly any value" for its Macau property cash flow, the firm said.
JP Morgan sees not much priced into the shares for the company's Macau or United Arab Emirates properties.
Morgan Stanley adjusted its forecasts across the casino gaming sector to embed weaker trends in Las Vegas and plateauing growth in Macau.
The firm cut its price target on Las Vegas Sands to $50 from $55 while maintaining an overweight rating on the shares.
Morgan Stanley also lowered its price targets on Caesars (CZR) to $40 from $41, and on MGM Resorts, to $43 from $44. It affirmed equal-weight ratings on both.
Meanwhile, the firm upgraded Boyd Gaming (BYD) to overweight from equal weight with a price target of $74, up from $66.
The firm cited stabilizing trends, capital return catalysts and a "compelling valuation" for the upgrade.
Boyd's discounted valuation creates a compelling risk/reward balance with multiple potential catalysts, Morgan Stanley said. After several consecutive quarters of declines, Boyd's regional business appears to be starting to stabilize, the investment firm said.
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