Besides a few earnings releases, there were some other important developments in the gambling industry last week. On the earnings front, Wynn Resorts Ltd. WYNN reported disappointing first quarter results as both earnings and revenues missed the Zacks Consensus Estimate on continued weak performance in Macau. This marked the second consecutive miss on both counts. However, Las Vegas, NV based Boyd Gaming Corporation BYD posted better-than-expected results with earnings and revenues beating the Zacks Consensus Estimate.
Meanwhile, Penn National Gaming Inc. PENN expanded its portfolio by acquiring Tropicana Las Vegas Casino Hotel Resort. In a separate development, Japan's pro-casino lawmakers were reportedly successful in submitting a long-awaited bill in the parliament to legalize casino gambling in the country.
Most importantly, Nevada’s gambling revenues fell for the month of March – marking the second consecutive fall this year. If this was not enough, Macau gambling revenues plunged 39% in April – marking the eleventh monthly decline in a row. (Read last development: Gambling Stock Round Up for Apr 27, 2015)
Recap of the Week’s Important Stories:
1. Gross gaming revenues (GGR) for the month of March fell 39% on a yearly basis to approximately $2.40 billion or 19.17 billion patacas, per Macau Gaming Inspection and Coordination Bureau. The decline was more or less in line with analysts’ expectations as well 39.4% decline recorded in March. However, this marked the eleventh month of consecutive decline and the eighth consecutive month of double-digit decline.
With the current decline, GGR in Macau for the first four months of 2015 plummeted 37% year over year. The continuous downside reflects the nationwide crackdown on corruption in China. This has compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
Consequently, it has lowered footfall at the local casinos. Meanwhile, a cooling Chinese economy, tighter visa policies, political unrest and a smoking ban on mass market gaming floors have compounded woes.
2. Nevada gambling revenues for the month of Mar 2015 declined approximately 3.2% to $951.2 million – marking the second consecutive decline in 2015. Revenues at the Las Vegas Strip that accounts for more than half of Nevada’s total revenue declined approximately 9.6% due to a 33.7% decline in revenues from Baccarat. Baccarat is a lucrative but volatile card game, which is often a big reason behind swinging casino fortunes.
3. Wynn Resorts posted dismal first quarter 2015 results wherein adjusted earnings of 70 cents per share plunged 70% year over year and missed the Zacks Consensus Estimate of $1.36 by 48.5%. The downside reflects a significant decline in revenues. Not surprisingly, revenues of $1.09 billion also missed the consensus mark of $1.21 billion by 9.9%.
Revenues fell 27.8% year over year, owing to sluggish performance in Macau. Meanwhile, the company slashed its cash dividend for the quarter by 66.7% to 50 cents. (Read: Wynn Resorts Lags on Q1 Earnings, Cuts Dividend by 67%)
Another Las Vegas, NV-based company Boyd Gaming's shares moved higher after the company posted better-than-expected first quarter 2015 results. Adjusted earnings of 13 cents per share beat the Zacks Consensus Estimate of 10 cents by 30% and increased significantly year over year. The upside reflects a decline in operating and interest expenses. Net revenue of $550.6 million marginally beat the consensus mark of $549.0 million.
However, it declined 22.3% year over year due to lower Gaming, Food and Beverage and Room revenues. Though revenues improved at Downtown Las Vegas, Midwest and South; Peninsula and Borgata, it declined at Las Vegas Locals. Total adjusted EBITDA was $149.2 million, up 11.1% year over year. Boyd Gaming increased its EBITDA guidance for 2015 and expects it in the range of $542.0 million to $567.0 million.
4. Japan's pro-casino lawmakers have reportedly submitted a long-awaited bill to the parliament for legalization of casino gambling in Japan. The lawmakers expect the bill to be passed before the end of the current parliamentary session in July or August.
Japan is one of the largest untapped markets for gambling in the world. Currently, gambling is illegal in Japan with the exception of betting on boat, bicycle and horse races. Legalization of gambling in Japan will make it the second-largest market in Asia after Macau. According to CLSA Ltd, a Hong Kong based brokerage firm, once gambling is legalized, Japan's gambling resort market is expected to generate about $40.0 billion a year from 2025 onward.
5. Penn National Gaming has entered into a definite agreement to acquire Tropicana Las Vegas Casino Hotel Resort for $360.0 million. The transaction that is scheduled to be completed by the end of 2015 will be financed through expansion of existing credit facilities and cash on hand. Largely owned by a partnership between Onex and Alex Yemenidjian, Tropicana Las Vegas spans over a 35-acre land parcel at the corner of Tropicana Boulevard and Las Vegas Boulevard.
The casino hotel resort has undergone renovation of the past four years and currently features approximately 1,500 guest rooms, 50,000 square foot casino space with over 1,000 gaming positions, full service restaurants, exhibition and meeting space spread over an area of 100,000 square feet and a spa.
Share Price Performance
Share price of most of the companies fell over the last five trading sessions as Nevada’ monthly revenues declined. Casino operators like Wynn Resorts (down 13.4%), Melco Crown Entertainment Ltd. MPEL (down 5.6%), MGM Resorts International MGM (down 2.7%) and Las Vegas Sands Corp. LVS (down 4.3%) were hurt as Morgan Stanley reportedly downgraded its outlook for the Macau gaming market and these four from "in-line” to "cautious." However, Caesars Acquisition Company CACQ and Boyd Gaming both ended the week with a gain.
Over the last six months, share price of most of the gambling stocks lost value with Wynn Resorts experiencing a decline of 39.1%, followed by Caesars Acquisition Company that plunged 34.9%. However, Boyd Gaming gained over the same time frame.
|
Company |
Last Week |
Last 6 months |
|
WYNN |
-13.4% |
-39.1% |
|
LVS |
-4.3% |
-13.4% |
|
MGM |
-2.7% |
-7% |
|
MPEL |
-5.6% |
-21.5% |
|
CACQ |
2.4% |
-34.9% |
|
BYD |
1.4% |
20% |
|
CZR |
-5.2% |
-23.5% |
What’s Next in the Gambling World?
We note that gambling stocks have oscillated between gains and losses in recent sessions. With MGM Resorts, Caesars Entertainment Corp. and Caesars Acquisition Co. set to report their results this week, the volatility in share prices is expected to continue.
MGM Resorts presently has a Zacks Rank #4 (Sell) and an Earnings ESP of -28.57% while Caesars Entertainment has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. Caesars Acquisition Co. carries a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%.
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