Gambling Stock Roundup: Melco Misses, Legalization of Casinos in Japan Delayed
There was hardly any encouraging news from the gambling sector this week. To begin with, Melco Crown Entertainment Ltd. (MPEL) and Full House Resorts Inc. (FLL) disappointed investors with lower-than-expected third quarter results. While Pinnacle Entertainment Inc.’s (PNK) earnings missed the Zacks Consensus Estimate, revenues beat the same marginally. Share prices of most of the companies in the industry declined.
The fifth consecutive monthly decline in Macau gaming revenues added to the downside. Meanwhile, postponement of the bill to legalize gambling for an indefinite period came as a blow to casino operators interested in the region including the likes of MGM Resorts International (MGM), Melco Crown, Las Vegas Sands Corp. (LVS), Wynn Resorts Ltd. (WYNN) and Caesars Entertainment Corp. (CZR). (Read last to last week’s development: Gambling Stock Round Up for Nov 3, 2014)
Recap of the Week’s Important Stories:
1. According to the Gaming Inspection and Coordination Bureau, gross gaming revenues for month of October fell 23% to $3.5 billion – marking the fifth consecutive monthly decline. Besides missing analyst’s expectation of a decline of 21%, the decline is said to be the biggest drop in a month since U.S.-based casinos began operating in the Chinese market in 2004.
The downside in the numbers reflects a slowdown in Macau gambling growth as a result of high-stake gamblers curtailing spending amid a cooling Chinese economy. Besides, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on high rollers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
Restrictions like limitation on the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. Also, visa restrictions, the imposition of a ban on smoking in casinos as well protests in Hong Kong are compounding the woes.
Analysts anticipate that high rollers will continue to avoid trying their fortunes owing to the restrictions.
2. Melco Crown’s third-quarter 2014 adjusted earnings of 28 cents per share missed the Zacks Consensus Estimate of 29 cents by a penny. Further, earnings declined from the year-ago figure of 33 cents by 15%. The downside reflects lower-than-expected revenues.
Meanwhile, net revenue declined 10.3% year over year to $1.12 billion and also missed the Zacks Consensus Estimate of $1.15 billion by 1.8%. Sales declined in all the segments due to lower group-wide rolling chip revenues, partially offset by improved mass market table games revenues. (Melco Crown Lags Q3 Earnings, Revenues, Macau Still Weak)
3. Japanese lawmakers are reportedly planning to postpone the legalization of casinos in the region for an indefinite period. This would lower the chances of opening any gambling resorts in the region by Tokyo’s 2020 Olympics.
Per media reports, Japanese Prime Minister Shinzo Abe and pro-casino lawmakers currently do not have enough political support required to pass the legislation this year. Reportedly, some of Abe’s cabinet members have been involved in a series of scandals making it all the more difficult to propose the bill in the next session of the parliamentary, let alone in the current session that will end this month.
This delay would thwart the plans of casino operators to establish their presence in a market, which has the potential to become the third largest gaming destination after Macau and the United States with an expected annual turnover of more than $40.0 billion.
4. Pinnacle Entertainment posted mixed third quarter results with adjusted earnings of 20 cents per missing the Zacks Consensus Estimate of 44 cents by approximately 55%, possibly due to higher total expenses and other costs and interest expenses. However, earnings increased 25% year over year on higher revenues and margins.
Net revenue (including Ameristar properties) of $568.3 million surged 35.7% year over year from $419.0 million and also beat the consensus mark by 0.7% on the back of higher gaming, food and beverage, lodging and retail, entertainment and other revenues. The year-ago figure included contribution of 49 days of Ameristar properties that were acquired on Aug 13, 2013. However, it was flat year over year when compared on a retrospective basis (including Ameristar properties in the complete prior year period).
In one other development, the board of directors of the company has approved the plan of separating its operating assets and its real estate assets into two publicly traded companies. Per the proposed separation, the company intends to create a newly formed, publicly traded, real estate investment trust (REIT or Prop Co) that will be distributed to shareholders of Pinnacle Entertainment in a tax-free spin-off, with Pinnacle Entertainment remaining an operating entity.
5. Full House Resorts posted earnings of 2 cents in the third quarter of 2014, missing the Zacks Consensus Estimate by 50% owing to lower-than-expected revenues. However, earnings remained flat year over year. Also, the company’s revenues of $32.9 million missed the consensus mark by 6% and declined 12% year over year. The downside reflects a decline in revenues at the Rising Star Casino Resort, as a result of increased competition in Ohio.
However, the company posted earnings after incurring losses for three consecutive quarters, which possibly boosted investors’ confidence, thereby lifting the share price of the company by 2.4%. The company believes that strong cost control initiatives taken by it along with gaming tax relief partially made up for the strong competitive and economic headwinds to some extent.
Performance
Not surprisingly, share prices of most of the companies plummeted over the last five trading sessions. Weak third quarter results, consistent decline in the Macau region and the loss of a big opportunity in Japan resulted in the downside. Moreover, Credit Suisse’s downgrading of Wynn Resorts’ and Las Vegas Sands’ subsidiaries compounded the woes. Share price of Melco Crown declined 8.7% followed by MGM Resorts that fell 5.6%.
Over the last six months, all gambling stocks lost value with Caesars Entertainment and Caesars Acquisition Company witnessing the maximum decline of 42.5% and 25%, respectively.
Company | Last Week | Last 6 months |
WYNN | -5.4% | -6.1% |
LVS | -4.4% | -18.7% |
MGM | -5.6% | -7.6% |
MPEL | -8.7% | -19.3% |
CACQ | -0.7% | -25.0% |
BYD | -0.6% | -6.1% |
CZR | -0.7% | -42.5% |
What’s Next in the Gambling World?
Century Casinos Inc. with a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00% is scheduled to report third quarter results on Nov 14, 2014. Caesars Entertainment carrying a Zacks Rank #4 (Sell) and Earnings ESP of -2.38% and Caesars Acquisition Company with a Zacks Rank #3 and Earnings ESP of 0.00% are both set to report third quarter results on Nov 10, 2014, after the markets close.
We note that gambling stocks have oscillated between gains and losses in recent sessions. Given the important events lined up this week, investors can expect this volatility to continue in the coming days as well.
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