Macau-Exposed Casino Stocks Get Dealt Poor Hand on Friday

NEW YORK (TheStreet) -- Casino-related stocks MGM Resorts (MGM), Las Vegas Sands (LVS), Wynn Resorts (WYNN) and Melco Crown (MPEL) dropped on Friday. On a trading day already plagued by market drops, these companies extended losses sparked after a JPMorgan report released Wednesday turned cautious.

In its report, JPMorgan analysts downgraded MGM China Holdings, MGM's Hong Kong-traded owner of its Macau casino, to "neutral". Analysts cautioned the Hong Kong-based casino industry was sufficiently valued. Wynn Resorts and Las Vegas Sands both own major properties in the region, while Melco is headquartered in Hong Kong.

"After adjusting price targets to take into account the new casino projects and FY14/15E estimates, we recommend that investors trim positions," wrote analysts Kenneth Fong and Daisy Lu.

JPMorgan kept Wynn and Las Vegas Sands as "overweight".

By late afternoon, MGM had tumbled 5% to $23.93, Las Vegas Sands had unloaded 5.6% to $74.33, Wynn tumbled 5.2% to $194.65, and Melco took off 6.5% to $39.02.

TheStreet Ratings team rates MGM RESORTS INTERNATIONAL as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate MGM RESORTS INTERNATIONAL (MGM) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and increase in net income. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MGM's revenue growth has slightly outpaced the industry average of 0.5%. Since the same quarter one year prior, revenues slightly increased by 9.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 81.08% and other important driving factors, this stock has surged by 98.61% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • MGM RESORTS INTERNATIONAL reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MGM RESORTS INTERNATIONAL swung to a loss, reporting -$3.61 versus $5.56 in the prior year. This year, the market expects an improvement in earnings (-$0.25 versus -$3.61).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, MGM RESORTS INTERNATIONAL's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has declined marginally to $365.70 million or 2.48% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, MGM RESORTS INTERNATIONAL has marginally lower results.

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