Casino stocks like Wynn Resorts (WYNN) caught a lucky break Friday after the Chinese government pledged economic support to the gambling mecca of Macau.
That’s probably going too far.
It’s not like the government can reverse Macau’s huge slump in gambling revenue overnight. Heck, it’s the government’s fault that Macau is drying up when it comes to putting cash in casino coffers.
But, sure, it could help.
Gambling revenue generated in Macau dwarfs casinos’ top-line take from Las Vegas by a wide margin. Heck, annual revenue from the former Portuguese enclave is greater than all Las Vegas, Atlantic City and Native American casinos — as well as every other domestic source — combined.
WYNN and other names with heavy exposure to Macau — for example, Melco Crown Entertainment (MPEL) and Las Vegas Sands (LVS) — have been under serious pressure ever since the Chinese government cracked down on corruption and organized crime, which scared much of the big money away.
Add to that the slowdown in the Chinese economy and a stock market crash, and business is bad in Macau. September marked the 16th consecutive month of dropping gambling revenue, falling 33% year over year.
WYNN stock duly suffered as a result. Shares in Wynn Resorts rallied Friday, but they’re still down 60% for the year to date and 75% from their March 2014 all-time high.
MPEL is off more than 40% YTD, and LVS is down by a third.
Help for WYNN, MPEL and LVS?
The Chinese government is considering measures to “support Macau’s economy in all aspects,” according to The South China Morning Post, but the size and scope of such help is hardly known at this point.
It’s possible the government could approve the enclave’s maritime expansion plans by the end of the year, the newspaper reports. Such a project would provide a boost to shipping, maritime transportation and tourism, but that’s not going to reverse the steep slide in gambling revenue anytime soon.
This latest news may offer a sliver of a silver lining for casino stocks like WYNN, but the the industry’s focus on new properties and attractions other than gambling is arguably more important.
The opening of additional casinos such as LVS’s Parisian and WYNN’s Wynn Palace should help stanch the bleeding, but they’re not scheduled to open until the spring. Besides, it’s not a sure bet that new hotels alone can offset the macroeconomic troubles that are hurting Macau’s gambling industry.
Friday’s rally looks like a trade more than a trend. It’s quite possible that the decline in Macau gambling revenue has bottomed out, but there’s nothing wrong with waiting for confirmation.
WYNN stock is trading at an attractive valuation, but until the market can trust that a Macau rebound is for real, sentiment will remain sour.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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