Melco, MGM, and Wynn are Consecutively Elevated in Macau's Stock Market.
The recovery of Macau is undeniably one of the main drivers behind the growth in casino stocks this year. According to CBRE Research analyst John DeCree, there's still more potential forthe US and Hong Kong-listed concessionaires to thrive.
In a report to clients, DeCree increased his second-quarter and full-year estimates for 2023 and 2024 for three US-based Macau operators: Las Vegas Sands, MGM Resorts International, and Wynn Resorts. These three companies operate five Macau casino resorts, with Sands China being the largest concessionaire in the special administrative region.
DeCree praised MGM, which manages two Macau venues through its MGM China subsidiary. He pointed to positive trends worldwide for the company, including the reopening in Macau, the convention and international recovery in Las Vegas, impending digital profitability, a potentially transformational greenfield opportunity in Japan, and a possible development in Downstate New York. Add in MGM's strong balance sheet and a share repurchase program, and the analyst says it's an attractive buy, especially for investors looking for long-term value creation at a good price.
DeCree predicts MGM will post a second-quarter EBITDA of $709 million, up from his previous estimate of $645 million. His 2023 forecast shifted to $2.97 billion from $2.81 billion, while his 2024 EBITDA projection for MGM rose to $2.88 billion from $2.81 billion.
Bullish on Lawrence Ho's Melco Resorts and Casinos, Too
DeCree is also optimistic about the three Asian-based Macau concessionaires, including Lawrence Ho's Melco Resorts & Entertainment.
CBRE initiated coverage on both Melco and Galaxy Entertainment, giving a “buy” rating to both stocks. The research firm sees Melco as one of the best ways to invest in the sector due to its lower valuation relative to other companies in the industry. The firm prefers Galaxy for those who want a Macau-focused pure play, citing its strong balance sheet, pipeline of projects in Macau, and successful track record.
"We see the shares of MLCO as one of the more attractive ways to invest in the sector based on current relative valuation," DeCree added. "As the shares of MLCO trade at 8.2x FY24 EBITDA, compared to the Macau Group average of 9.9x and the HK-Listed Macau Group Average of 11.3x."
Melco has the additional benefit of geographical diversity, as it operates in the Philippines and recently opened Europe's largest casino in Cyprus. Shares of Melco have gained 18.21% in the past week, contributing to its 19.13% year-to-date gain.(contained=True)
The Case For Wynn Resorts
When it comes to Wynn Resorts and its two Macau casino hotels via its Wynn Macau unit, DeCree believes investors haven't fully realized the extent of the stock's connection to the Macau rebound.
"We contend the market under-appreciates Wynn's recovery in Macau, the sustainability of earnings in Las Vegas, the material real estate value of its portfolio, and the company's lucrative development project in the UAE," said the analyst.
DeCree also notes that shares of Wynn are significantly discounted compared to normal market valuations.
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Source: www.casino.org
