The week saw most gambling stocks witnessing a downtrend, largely due to issues related to Macau. These issues have been a threat since May 2014 for the companies operating in the region. This was compounded by the closure of another casino in Atlantic City, the third since the beginning of the year. Meanwhile, a group of bondholders filed a lawsuit against Caesars Entertainment Corporation (CZR).
Among positives, the Iao Kun Group Holding Company Limited (IKGH) reported a 3% increase in Rolling Chip turnover for the month of August. (Read last to last week’s development: Gambling Stock Round Up for Sep 2, 2014.)
Recap of the Week’s Important Stories:
1. Last week, Revel – a $2.4 billion casino hotel – was reportedly closed down. The property was reportedly debt laden when it was opened two years back in Apr 2012. Per analysts, bad business decisions also affected its performance and led the unit to shut shop.
This is the third casino that has been closed so far in Atlantic City this year following the closure of The Atlantic Club in Jan 2014 and Showboat, a Caesars Entertainment Corp. property that was shut down on Aug 31, 2014. Caesars Entertainment had announced its plan to close Showboat to trim its East Coast gambling hub operations due to persistent revenue declines and rising property taxes in the region. (Read: Caesars to Shut Showboat: Is Atlantic City Losing its Shine?)
The Trump Plaza Hotel and Casino is expected to be closed on Sep 16. This will be the fourth closure this year and the third in a month. These back-to-back closures would reportedly leave 8,300 people unemployed and would reduce the total number of casinos in Atlantic City to 8 from 12 at the beginning of the year. Atlantic City, once the foremost gambling destination in the East Coast, is facing stiff competition after gambling was legalized in neighboring states including Pennsylvania and New York. As a result, several casino operators decided to withdraw their operations from the market.
However, Showboat has reportedly found another prospective buyer in Latitude 360, a Jacksonville company that develops restaurants and entertainment complexes. Latitude 360 stated that this casino is one of the three locations it is considering for a $20 million project. Earlier, Atlantic Properties of Vineland had proposed to use the property as a small casino but Latitude 360 does not have any such plans.
2. Iao Kun Group that promotes VIP gaming rooms in Macau announced that Rolling Chip turnover at the company’s VIP rooms in Macau was $1.53 billion, up 3% year over year for the month of August. Win rate for the month was 2.50%. For the first eight months of 2014, Rolling Chip turnover has increased 9% year over year. However, this gaming company posted dismal second quarter 2014 results in the last week of August with a loss of 12 cents per share that compared unfavorably with the Zacks Consensus Estimate of earnings of 1 cent and year-ago earnings of 20 cents per share.
Net revenues of $49.7 million declined 22% year over year and missed the Zacks Consensus Estimate of $61 million by 19%. The downside reflects a decline in win rate, slower revenue growth of the VIP baccarat and tightening of credit in mainland China where the majority of Iao Kun Group’s VIP gaming patrons reside. (Read: Iao Kun Group (IKGH) Falls on Q2 Loss, Macau Business Weak.)
3. Holders of more than $20 million in Caesars Entertainment Corp. have reportedly filed a lawsuit in the U.S. District Court in Manhattan accusing the company of "self-dealing" and "collusion" when it repurchased and retired some of its debt in Aug 2014. Last month, the company had entered into an agreement to reduce the debt of its subsidiary, Caesars Entertainment Operating Co. (CEOC) by nearly $550 million, as well as cut the interest it pays on the debt. The bondholders claim that this casino giant has worked out a "backroom" deal and violated rights to aid one group of creditors and hurt others.
Prior to this debt agreement, Caesars Entertainment was reportedly sued by note holders in August who said billions of dollars of assets were fraudulently transferred out of CEOC to keep the properties out of the reach of creditors. Also, Caesars Entertainment with its subsidiary CEOC filed a suit in the Supreme Court against certain institutional investors.
The company claims that these investors have made attempts to spoil CEOC's restructuring efforts and that it would go into default. (Read More: Gambling Stock Roundup: Earnings Beat at MGM Resorts, Melco Crown and Full House Disappoint.)
The lawsuits are related to the restructuring of this debt-ridden company. It has struggled since private-equity firms Apollo Global Management and TPG led a roughly $30 billion leveraged buyout of the company in 2008.
4. Churchill Downs Inc. (CHDN) announced that Elizabeth Wester has been promoted as Vice President of Government Relations. Effective immediately, Wester will be responsible for the development and implementation of the company's political and legislative strategies and will report to William Carstanjen, the Chief Executive Officer of Churchill Downs. Wester had joined the company in Apr 2012 as the Senior Director of Government Relations.
Performance
Share prices of Wynn Resorts Ltd. (WYNN), Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM) and Melco Crown Entertainment Ltd. (MPEL) declined for the second consecutive week due to sluggish Macau results for the month of August. Gross gaming revenue for the month declined 6%, marking the third successive month of decline after 3.7% in June and 3.6% in July. (Read: Macau August Revenues Decline, Melco Crown & Others Fall.)
Given the current scenario, a few analysts have lowered their ratings and earnings estimates for these companies, thereby negatively impacting their share prices.
Over the one-week period, Caesars Entertainment declined the most (10.3%) due to the lawsuit. Las Vegas Sands came next owing to a drop of 5.6%. Over the last six months, all gambling stocks have declined with Caesars Entertainment and Melco Crown declining the most – 46.8% and 36.2%, respectively.
|
Company |
Last Week |
Last 6 months |
|
WYNN |
-3.7% |
-21.2% |
|
LVS |
-5.6% |
-22.8% |
|
MGM |
-1.2% |
-13.3% |
|
MPEL |
-0.9% |
-36.2% |
|
CACQ |
-3.0% |
-19.3% |
|
BYD |
4.6% |
-8.3% |
|
CZR |
-10.3% |
-46.8% |
What’s Next in the Gambling World?
Pinnacle Entertainment Inc. and Churchill Downs will participate in the Bank of America Merrill Lynch 2014 Gaming and Lodging Conference in New York on Sep 9, 2014.
We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect such movement in the coming days as well.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment