Macau Casino Shares May Surpass Las Vegas Competitors, Predicts Expert
With Las Vegas missing the catalysts, Macau having more potential for recovery, casino stocks with Macau exposure could outshine the ones focused on Sin City in the coming year. This is the viewpoint of CFRA Research analyst, Zachary Warring, who expressed this opinion in a latest note. He pointed out that re-visitation to Macau is a major driver for Macau casino stocks to surpass their Las Vegas counterparts in the upcoming year.
Macau, which had only 389,390 visitors in December 2023, experienced a massive increase of 395% Y/Y in 2023, but it was still only 71.6% of what it was in 2019. Warring expects the number of visitors to reach pre-pandemic levels by the end of 2024. "Visitation for the first three months of 2024 has been between 80% and 95% of 2019 levels and is heading in the right direction," he wrote. For context, the annual visits to Macau were 39.40 million in 2019, but in 2023, it was 28.21 million. This shows Macau operators still have a long way to go to attain pre-pandemic norms, which could lift Macau gaming stocks.
CFRA Prefers Macau Casino Stocks over Domestic Ones
In his report, Warring expressed his preference for three casino operators from Las Vegas that are also active in Macau - Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN). He continues to rate them as “buy”.
Warring felt LVS, which celebrated the 20th anniversary of Sands Macau last year, is the largest Macau operator with five integrated resorts. The premium-mass and mass-market betting segment, along with an expansive portfolio of non-gaming amenities, positions the operator well in Macau.
He also praised LVS' efforts to strengthen its balance sheet and its pursuit of a New York City casino license. As he notes, "the company has $4 billion in debt coming due in 2024 and 2025, which we believe management will pay off instead of refinance. This would improve its balance sheet and enhance its EPS. Additionally, the operator is contending for the New York City casino license. If they are granted it and it's the only casino the company holds, LVS will be generating a substantial amount of free cash flow and improving its balance sheet in 2024. We anticipate a positive 12 months for LVS."
Lackluster Outlook for Las Vegas
The combined economic impact of the Las Vegas Grand Prix in November and the February Super Bowl is estimated at $2.1 billion, a significant sum but already factored into the share prices of Strip operators. Warring suggested that the growth in Las Vegas over the last six months has largely been a result of these two events, and with them in the past there's little else to drive the growth. The Grand Prix will be back in November, but it might not elicit the same amount of hype and thus not result in similar outcomes.
MGM, the largest Strip operator, can potentially offset this potentially reduced patronage via its exposure to Macau. However, Caesars Entertainment (NASDAQ: CZR) has no Macau exposure, making its stock price susceptible to investor sentiment toward Las Vegas and regional casinos and online gaming.
Warring believes Caesars' substantial debt load could point to a value trap, but noted the operator could offload some underperforming assets this year to offset that debt. "We expect CZR to sell lagging assets in 2024 to raise cash and reduce its debt load," he concluded. "Caesars expects a slowdown in revenues and EBITDA growth from Las Vegas and regional segments. The dwindling marketing for the digital business is expected to result in a revenue deceleration as well. We believe CZR's forward EV/EBITDA multiple could be a value trap."
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Source: www.casino.org
