Analyst Sees Opportunity in Macau Casino Stocks Amid China's Economic Concerns

Macau casino stocks have been facing a downward trend since early August, primarily due to concerns about China's slowing economy and temporary closures of gaming establishments during a typhoon. However, one analyst believes that the current situation offers an opportunity to revisit these stocks.

Stifel analyst Steven Wieczynski has released a report suggesting that the macroeconomic fears affecting China's economy, the second-largest in the world, are already reflected in the stock prices of Macau operators. This could imply that there are potential valuation opportunities for investors.

Two major players in the Macau market, Las Vegas Sands (LVS) and Wynn Resorts (WYNN), have experienced declines in their stock prices over the past month. LVS shares have dropped more than 15%, while Wynn Macau's parent company has seen a 4.70% decrease during the same period.

Despite reducing the price targets for Sands and Wynn to $69 and $135, respectively, Wieczynski still sees significant upside potential for both companies. Wynn's recent closing price was $91.56, while Sands settled at $45.79.

One factor contributing to their potential for growth is the recovery of Macau's gross gaming revenue (GGR), which is approaching pre-coronavirus levels in 2023. Standard & Poor's estimates that GGR will reach 85% to 90% of pre-coronavirus levels this year, with a full recovery expected by 2024. This is particularly relevant for Sands, which, along with Galaxy Entertainment, caters to mass and premium-mass gamblers visiting Macau.

Although September's GGR might be affected by typhoon-related closures, the upcoming Golden Week holiday could serve as an important opportunity to counter concerns about China's economic weakness.

Wieczynski stated, "We believe the setup is compelling for Macau-centric names heading into 2H23/2024. Stocks have significantly underperformed our coverage universe not only since the beginning of the year but more recently over the last two months. China macro fears are the primary culprit of the recent weakness in shares, in our view."

While Wieczynski has a positive view of Las Vegas Sands, he favors Wynn due to its exposure to premium mass clients, a segment that is more economically sensitive than the mass market.

Both Sands and Wynn are currently trading at substantial discounts compared to their historical averages, making them attractive options for investors looking for potential opportunities without the need to invest in high multiples.

"LVS is currently trading at a 2.5 turn discount to their historical average while WYNN is trading at a 3x discount to their previous trading average," Wieczynski concluded.

By fLEXI tEAM