Macau casino stocks were hammered on Tuesday as investors worried fears over the deadly coronavirus in China would hurt Macau’s gaming revenue during the upcoming Chinese New Year period. Bank of America analyst Shaun Kelley said the market may be overreacting to the situation.
The CDC has confirmed nine deaths and hundreds of cases of the Wuhan virus, but Kelley said this isn’t the first time in recent history there has been a virus scare in China. The virus originated in Wuhan, which is located about 600 miles north of Macau.
Kelley said the 2003 outbreak of SARS in China is likely the bear-case scenario for the Wuhan virus, with the 2009 outbreak of swine flu likely the bull case at this point.
Similarities To Swine Flu
So far, Kelley said the Wuhan virus appears to be more similar to swine flu than SARS given the relatively low number of confirmed cases, limited human-to-human transmission and the relatively low mortality rate compared to SARS.
During the swine flu outbreak in 2009, Macau visitation never dropped by more than 20% and fully recovered within three months.
The two-week Chinese New Year celebration kicks off on Jan. 25, and Kelley said there shouldn’t be a significant negative impact on Macau traffic. Bank of America’s latest Macau room rate survey suggests about 60% of Macau hotels are already sold out for the New Year holiday compared to about a 65% sell-out rate at this point last year.
"Additionally, our Hong Kong team’s channel checks point to limited disruption and while we remain cautious, we do not see large amounts of incremental risk at this point," Kelley wrote in a note.
Ratings And Price Targets
Bank of America has the following ratings and targets for U.S.-listed Macau casino operators:
- Melco Resorts & Entertainment Ltd (NASDAQ: MLCO), Buy rating, $34.10 target.
- Wynn Resorts, Limited (NASDAQ: WYNN), Buy rating, $160 target.
- Las Vegas Sands Corp. (NYSE: LVS), Neutral rating, $72 target.
- MGM Resorts International (NYSE: MGM), Neutral rating, $35 target.
Macau casino stocks opened higher on Wednesday after a brutal Tuesday session, suggesting the worst of the initial coronavirus sell-off may be over for now. Long-term investors can use swine flu and SARS as encouragement that the coronavirus disruption will likely be completely forgotten in a matter of months, while short-term traders should be on the lookout for opportunities related to additional headlines related to deaths or further outbreaks.
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