Macau Casino Stocks Could Outperform Las Vegas Rivals, Says Analyst

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With Las Vegas lacking catalysts and Macau having more room to run back to pre-coronavirus visitation levels, shares of casino operators with exposure to the Chinese territory could outperform Sin City-focused counterparts over the next year.

A sign for Wynn Macau. An analyst is bullish on Macau casino stocks, saying those names could outperform Las Vegas rivals. (Image: Reuters)

That’s the take of CFRA Research analyst Zachary Warring who, in a recent note, highlighted a preference for Macau gaming stocks over domestic equivalents. Rebounding visitation to the special administrative region (SAR) is a primary reason why Macau casino stocks could outpace Las Vegas rivals in the year ahead.

For reference, Macau saw just 389,390 visitors in December 2022. Visitation to Macau for all of 2023 was up a whopping 395% Y/Y, but was still only 71.6% of 2019 levels,” wrote Warring. “We believe 2024 has plenty of upside in visitation and expect visitation to reach 2019 levels in Q4. Visitation for the first three months of 2024 trended between 80% and 95% of 2019 levels and continues to trend in the right direction.”

As a point of reference, annual visits to the Asian casino center trended higher in the decade ending 2019, peaking at 39.40 million in that year, but in 2023, that number was 28.21 million. That implies there’s still a long runway for Macau operators to get back to pre-pandemic norms and if that goal is achieved, Macau gaming equities could benefit.

Among Macau Casino Stocks, CFRA Likes US-Based Names

In his report, Warring extoled a preference for the three Las Vegas-based Macau concessionaires — Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN) — maintaining “buy” ratings on the trio.

LVS, which recently celebrated the 20th anniversary of the debut of Sands Macau, is the largest Macau operator with five integrated resorts there. Sands’ leverage to premium-mass mass-market bettors as well as its expansive portfolio of non-gaming amenities are advantages in the SAR.

Warring also highlighted the operator’s efforts to firm its balance sheet and pursuit of a New York City casino license as potential sparks for the shares.

“The company has $4 billion in debt coming due in 2024 and 2025, which we believe management will pay off instead of refinance, improving its balance sheet and boosting EPS. LVS is competing for licensing in New York City, which would be the company’s only U.S. property after the sale of its Las Vegas properties in 2022,” added the analyst. “We believe LVS will generate significant free cash flow and improve its balance sheet in 2024. We expect a positive 12 months from LVS.”

CFRA Less Enthusiastic on Las Vegas

Clark County officials estimate the combined economic of last November’s Las Vegas Grand Prix and the Super Bowl in February at $2.1 billion – an impressive sum, but one that’s already factor in shares of Strip operators.

“In our opinion, the growth seen in Vegas over the past six months has come from these two huge events, which are now in the rearview with little to drive growth moving forward,” observed Warring.

The race returns this November, but it is possible initial hype that drove room rates higher won’t repeat. That could weigh on MGM, which is the largest Strip operator, but the company can augment that potential softness via its stake in MGM China.  Rival Caesars Entertainment (NASDAQ: CZR) has no Macau exposure, meaning its share price is largely reflective of investors’ feelings about Las Vegas and regional casinos and online gaming.

Warring noted Caesars’ substantial debt burden could signal a value trap, but added the operator could sell some lagging assets this year to reduce those obligations.

“We expect CZR to sell underperforming assets in 2024 to raise cash and pay down its elevated debt load,” concluded the analyst. “We see limited upside to revenues and earnings before interest, taxes, depreciation, and amortization (EBITDA) from its Las Vegas and Regional segments from these levels and the company plans to cut back on marketing at digital, which should see a growth deceleration as well. We believe CZR’s forward enterprise value/EBITDA multiple could be a value trap.”

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