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Moderate Earnings Put Casino ETF in Focus

Sanghamitra Saha

Things have been volatile for Casino stocks and ETFs of late due to the U.S.-China trade war. The pure-play casino ETF VanEck Vectors Gaming ETF BJK has lost 22.1% in the past year (as of Feb 14, 2019), but has recoiled this year, having added 12.3% probably due to U.S.-Sino trade hopes (read: Sector ETFs & Stocks to Rally on US-Sino Trade Hopes).

Still, Macau casino revenues dropped 5% in January, marking the first year-over-year decrease since July 2016. However, things are not that gloomy as January was the third successive month of Macau gaming revenues beating expectations.

Below we highlight a few recently released earnings reports from some industry bellwethers and see how those performed in the trade-war-trodden fourth quarter.  

Inside Earnings

On Feb 13, MGM Resorts International MGM reported impressive results in fourth-quarter 2018 after market close, wherein earnings and revenues outpaced the respective Zacks Consensus Estimate. Adjusted earnings of 14 cents surpassed the consensus estimate of 13 cents. Earnings also compared favorably with the year-ago quarter’s break-even profit. Total revenues of $3,052.9 million outpaced the consensus mark of $2,954 million and increased 17.5% year over year. The improvement was backed by higher revenues at both gaming and non-gaming facilities. However, shares fell about 6.4% in the key trading session as it indicated the risk of a “rising cost environment.”

In late January,Wynn Resorts Ltd. WYNN reported mixed fourth-quarter 2018 financial numbers, wherein earnings fell short of the Zacks Consensus Estimate but revenues surpassed the same. Adjusted earnings of $1.06 per share lagged the consensus mark of $1.36 and decreased 24.3% on a year-over-year basis. Meanwhile, revenues totaled $1,687.6 million, which surpassed the consensus estimate of $1,573 million. The top line also improved 4% on significant contribution from Wynn Palace and Las Vegas operations, offset by a decrease in Wynn Macau operations.

In late January,Las Vegas Sands Corp. (LVS) reported disappointing fourth-quarter 2018 results, wherein both earnings and revenues missed the respective Zacks Consensus Estimate. In the reported quarter, adjusted earnings came in at 77 cents per share, which declined 12.5% year over year and lagged the Zacks Consensus Estimate of 86 cents. Net revenues of $3,475 million missed the consensus mark of $3,499 million but improved 2.5% on a year-over-year basis.

 Market Impact

The pure-play ETF BJK gained a meager 2.8% since Las Vegas Sands reported on Jan 23. In any case, the stocks belong to a top-ranked Zacks Industry (top 42%).

As for the Zacks Rank, LVS has a Zacks Rank #4 (Sell), MGM has a Zacks Rank #5 (Strong Sell) and Wynn Resorts carries a Zacks Rank #3 (Hold). While investing in a single stock is always an option, investors can also try the form ETF as a basket approach mitigates any particular stock’s weakness.  

BJK in Focus

The fund looks to track the MVIS Global Gaming Index and provides investors direct exposure to the casino gaming market. The fund has so far attracted $28.2 million in assets and invested that in 42 holdings. The product is expensive as its net expense ratio is 66 bps.

All the three abovementioned companies have created places in the top 10 holdings of the fund with a considerable share. Both companies, Las Vegas Sands and Sands China, have about 15% exposure in BJK. MGM Resorts International and MGM China Holdings call for about 7% of the fund. Wynn Resorts Ltd and Wynn Macau also account for about 8% of BJK. The fund has about 41.3% exposure to the United States followed by 14.6% in China and 14.1% in Australia (see all Consumer Discretionary ETFs here).

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Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report
MGM Resorts International (MGM) : Free Stock Analysis Report
Wynn Resorts, Limited (WYNN) : Free Stock Analysis Report
VanEck Vectors Gaming ETF (BJK): ETF Research Reports
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