It’s shaping up to be a good week for our Gaming, Lodging and Leisure team. Our analysts went long after calling the bottom in Macau casino stocks back in September. Last week, they called the top. Stocks have fallen as much as 10% today.
In a note to institutional clients back in September, Gaming analysts Todd Jordan and Felix Wang wrote that the outlook for casino operators in Macau was looking up. Stocks like Wynn Resorts (WYNN), Melco Crown (MPEL), Las Vegas Sands (LVS), MGM Resorts (MGM), and Galaxy Entertainment had been hammered by a preponderance of bad “junket” news. Our Gaming team correctly noted that the casino operators would soon be lapping last year's easy comps for its “mass” business."
The first week in October was aided by a better than expected "Golden Week." But the rest of the month didn't come in nearly as strong. and our team thinks November will be back to what the longstanding trend. More to be revealed.
*From 9/30 until closing out their long call on 11/4 the stocks noted above were up between 27% and 40%.
That rosy outlook reversed last week.
In their report, titled “October Not So Golden,” Jordan and Wang wrote “We’ve had a long Macau call on since late September but we fear the end of that trade is near.” After a good run, it was “a good time to book profits.”
They got the timing right. Among their chief concerns was gross gaming revenue (GGR) that would revert to the norm, i.e. bad news for gaming revenues. Wall Street remained bullish. But the data confirmed their thinking. Today alone, the casino operators are down between 2% and 10%.
Where do we go from here? Well, the outlook isn’t good.
“We think November has started with a dud and fear is GGR could disappoint over the near-term. Moreover, our 2016 estimates remain well below the Street.”
Below is a key slide from Jordan and Wang's presentation to institutional subscribers last week laying out their thesis.
(If you'd like to read our Gaming team's comprehensive research on Macau please ping sales@hedgeye.com.)