NEW YORK (
) -- Casino stocks are in focus this week, as companies prepare to report third-quarter earnings.
Investor sentiment within the sector has been seesawing over the past several weeks. Momentum built after
Las Vegas reported a significant gain in August gaming revenue, but that optimism quickly faded following
lackluster preliminary third-quarter results.
As we head into earnings results, starting with Penn National Gaming on Thursday, I've received several questions regarding the casino sector. Here are my responses:
Jim Neary asked via Twitter: Which gaming companies have the most exposure in Macau? Which of these are succeeding?
Here's the market share breakdown in September, courtesy of Sterne Agee analyst David Bain:
Las Vegas Sands
Melco Crown Entertainment
, 12%; MGM, 10%.
Macau reported a 40% surge in gaming revenue in September to $1.91 billion, and October is poised to see the best monthly gains to date.
Las Vegas Sands
is the biggest beneficiary of Macau strength, Majestic Research analyst Matthew Jacob says, due to its bigger mass market appeal. The sale of Four Seasons apartment hotels in Macau could give Sands a boost.
Wynn lost market share in Macau during its third quarter, according to analysts.
"While Encore has helped drive some mass-market traffic to Wynn Macau, we believe the company's share of VIP play is under pressure in the near-term," Jacob wrote in a note.
He estimates Wynn Macau's game-usage share was about 7.5% during the quarter, down from 8.4% in the period prior.
MGM filed an application for an initial public offering of some of its Macau assets on the Hong Kong exchange earlier this month. But the company said it is planning to take $125 million from its balance sheet of its Macau assets, which could slightly weaken the offering.
"We believe the timing of its cash remuneration from Macau may signify the company's priorities to Hong Kong investors," Bain wrote.
Expectingrain5 asked via Twitter: When will the upgrade cycle hit slot machines?
Slot machine makers struggled amid the recession as casinos held off on replacing equipment, but that could be changing in the near future.
Deutsche Bank analyst Chris Woronka has said that regional casinos may start installing new machines, pushing other companies to follow suit. "We believe this scenario is likely to manifest itself as well-capitalized players gain greater confidence in a broader economic turnaround," he wrote in a note last month.
Woronka recommends picking up shares of
International Game Technology
ahead of this upgrade cycle.
WMS is scheduled to report its third-quarter earnings on Nov. 1, while IGT will report on Nov. 9.
Stephano Tomassis asked in an e-mail: Reading your articles about MGM Resorts and the fact that they keep writing down the value of CityCenter makes me wonder why other Las Vegas casino companies have not written down the value of their respective properties? Surely, if CityCenter is worth less, these other casino properties must have fallen in value too.
MGM said last week that it incurred a $357 million impairment charge related to its CityCenter investment. The company wrotedown the value of CityCenter to $2.28 billion, significantly less than the $8.7 billion it cost MGM to build the resort-casino.
Writedowns are typically done in accordance with financial reporting regulations. Companies cannot carry assets on their balance sheets whose value significantly exceeds market value.
Alex Calderone, who provides turnaround and crisis management services for the gaming sector at Conway MacKenzie, expects the majority of the writedown is coming from CityCenter's condo units.
"The fact that other properties haven't been written down doesn't mean there aren't problems there," he says. "These properties could not be at a point where they are recognizing the loss yet. There are also plenty of failing companies that don't write down."
After Las Vegas Sands has totally outperformed the other stocks such as Wynn and MGM, will this start to change?
Las Vegas Sands has a real competitive advantage in the space, especially against MGM. Sands was the first to really enter Asia, and Singapore will be a tremendously profitable business and keep them in the lead for a while, Calderone says.
While it's unlikely MGM will be able to catch up to Sands, Wynn has a much better chance.
If you have any other questions about the casino sector e-mail
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--Written by Jeanine Poggi in New York.
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