Macau is the gambling capital of the world. It dwarfs even the Las Vegas strip. Following his recent trip to Macau, Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan added Galaxy Entertainment Group (ticker: 0027.Hong Kong) to his Best Ideas long list last week.
Good call.
Galaxy handily beat third quarter estimates driven by a strong mass volumes, controlled property related costs and had a high VIP hold percentage. Galaxy beat our estimate by 1% and was up 6% versus the Street.
Jordan lays out why he likes Galaxy, in the video excerpt above from his recent conference call.
Here’s what remains underappreciated by many investors:
- Galaxy Near – The call on Galaxy is not just a near-term trade. We like the stock long-term. But when Galaxy report Q3 earnings the results could be out of this world.
- A Galaxy Far, Far Away – Galaxy and Las Vegas Sands (LVS) are light years ahead of the competition in terms of long-term positioning in Macau.
- Pristine Balance Sheet – the company maintains huge free cash flow and has high ROI opportunities
- Wall Street Is Wrong – We’ve heard the narrative that multiples are too high and earnings will be lackluster. We disagree.
In short, Galaxy has an excellent management team in place that should be able to take advantage of the positive trends that we saw developing in Macau back in June. “CEO Kevin Kelly, who I’ve known for a number of years, is doing a great job,” Jordan says. “We got very good feedback from competitors when we were out in China. You can see it in the numbers.
Following the earnings release, Jordan writes, “We think Galaxy is the stock to own in Macau due to its outperformance in a now growing Macau mass market.”
