Battleground: Firms clash on outlook for Macau
Two research firms issued notes to investors this morning with very different views on the outlook for Macau casinos, with Bernstein saying that the region's results probably bottomed last quarter and Wells Fargo predicting that the gaming area's October performance would be worse than previously expected. Casino owners with a significant presence in Macau include Wynn Resorts (WYNN), Las Vegas Sands (LVS), Melco Crown (MPEL) and MGM Resorts (MGM). BULLISH TAKE: Macau casinos probably bottomed last quarter, wrote Bernstein analyst Vitaly Umansky. Following a strong performance by the casinos during a Chinese holiday last week, the region's gross gaming revenue, or GGR, should drop 28%-31% in October, versus the same period a year earlier, the analyst stated. October may be the first month since January in which Macau's GGR will drop less than 30% year-over-year, according to Umansky. Non-VIP GGR will rise year-over-year in December and VIP GGR comps could turn positive in mid-2016, the analyst predicted. After top Chinese officials indicated that they would take steps to boost Macau, Umansky had a mixed view on the impact that potential government stimulus could have on the region's casinos. Past statements of support by government officials have not always translated to improved results for the casinos, but the effectiveness of the government's measures could positively surprise investors, the analyst believes. He kept an Outperform rating on Melco Crown. BEARISH TAKE: After conducting checks, Wells Fargo says that demand for gambling in Macau moderated following the Chinese Golden Week holiday. Wells now expects Macau's GGR to drop 30%-34% this month compared with the same period a year earlier. The firm had previously predicted that the region's GGR would decline 27%-31% this month. Macau's gaming revenues will continue to be pressured for the rest of the year, according to the firm. Eventually, non-VIP revenue will stabilize, but the casinos' recovery will not be "V-shaped," the firm contended. Addressing the outlook for government stimulus, Wells says it believes that the government's promises of support "reflect broad long-term goals, rather than specific stimulus measures." PRICE ACTION: In late morning trading, Wynn dropped 2.3% to $74.16, Las Vegas Sands lost 1% to $46.60, Melco Crown was fractionally lower near $18 and MGM declined 1.5% to to $20.80.
