Melco, MGM, Wynn Among Upgraded Macau Stocks

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The Macau recovery is one of the obvious themes underpinning strength in casino stocks this year. Some analysts believe there’s more upside to come for US and Hong Kong-listed concessionaries alike.

Wynn Palace in Macau. An analyst is bullish on select on Macau stocks, including Wynn. (Image: CNBC)

In a new report to clients, CBRE Research analyst John DeCree boosted second-quarter, full-year estimates for 2023 and 2024 on Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NASDAQ: WYNN), the three US-based Macau operators. That trio combine to run five Macau casino resorts, including five under the control of Sands China, the special administrative region’s (SAR) largest operator.

The analyst spoke glowingly of MGM, which runs two Macau venues by way of its MGM China unit, adding to an increasingly bullish outlook on that name within the analyst community.

MGM has tailwinds across the globe, including the reopening in Macau, convention and international recovery in Las Vegas, impending Digital profitability, a transformational greenfield opportunity in Japan, and possibly a development in Downstate New York,” observed DeCree. “Combine this with a fortress balance sheet and a robust share repurchase program, MGM is a compelling buy, particularly for long-oriented investors looking to get in on long-term value creation at attractive levels.”

DeCree sees MGM posting second-quarter EBITDA of $709 million, up from a prior estimate of $645 million. His 2023 forecast moved to $2.97 billion from $2.81 billion, while his 2024 EBITDA estimate for MGM inched up to $2.88 billion from $2.81 billion.

Bullish on Melco Resorts, Too

DeCree is also bullish on the three Asia-based Macau concessionaires, including Lawrence Ho’s Melco Resorts & Entertainment (NASDAQ: MLCO).

CBRE initiated coverage of Melco with a “buy” while doing the same with Galaxy Entertainment. The research firm prefers those names to SJM Holdings, which it rates “hold.”

“We see the shares of MLCO as one of the more attractive ways to invest in the sector based on current relative valuation, with the shares trading at 8.2x FY24 EBITDA vs the Macau Group average of 9.9x and the HK-Listed Macau Group Average of 11.3x,” added DeCree. “For investors that prefer a Macau pure play, Galaxy remains the stock of choice, with its fortress balance sheet, long-term growth pipeline in Macau, and a strong operating track record.”

Melco also offers investors the benefit of geographic diversity as it has operations in the Philippines, and recently opened Europe’s largest casino in Cyprus. Momentum is building for shares of Melco, which are higher by 18.21% over the past week, a pop that accounts for the bulk of the stock’s 19.13% year-to-date gain.

Wynn ‘Underappreciated’

Regarding Wynn Resorts, the operator of two Macau casino hotels via its Wynn Macau unit, DeCree makes an argument for the stock that’s increasingly familiar: investors aren’t fully appreciating the stock’s leverage to the Macau rebound.

“We contend the market under-appreciates Wynn’s recovery in Macau, the sustainability of earnings in Las Vegas, the material real estate value of its portfolio, and the company’s lucrative development project in the UAE,” noted the analyst.

He added that shares of Wynn are trading at levels that are largely discounted relative to historical norms.

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