Macau fortunes will be a good luck charm for Wynn

Visitors to Macau rose by about 7% in December, and that made analysts at Morningstar very bullish on China's gambling region Tuesday. Morningstar expects Wynn Resorts  (WYNN - Get Report)  to be one of the biggest beneficiaries of this trend going into the Lunar New Year. 

Morningstar raised its price target on Wynn, which relies on Macau for 60% of its annual earnings before interest, taxes, depreciation and amortization, to $123 from $118. Morningstar's checks suggest the Year of the Rooster celebrations in China this weekend will be an especially lucrative time for Macau. 

"We maintain our constructive view on Macau's intermediate growth potential after healthy December visitation growth of 6.8% and our checks point to strong bookings for the upcoming Chinese New Year," according to analyst Dan Wasiolek. "Both of which are incorporated in our recently raised 2017 industry gaming revenue forecast of 6%."

The firm's checks show Wynn's hotels, which account for 11% of total casino hotel capacity on the peninsula, were fully booked for the lunar New Year week of Jan. 28 to Feb. 2. The newly opened Las Vegas Sands (LVS - Get Report) Parisian resort and MGM Resorts Int'l  (MGM - Get Report) property, representing 12% and 2% of casino hotel supply, respectively, were also fully booked. 

Wynn was able to increase its room share to 9% from 6% (room share includes non-casino operator hotel room supply) with the opening of its Cotai Palace property in August 2016.

The Venetian, Las Vegas Sands' other resort in Macau, still has room availability, but room prices for Jan. 28 and Jan. 29 ranged between $373 and $554 per night, compared to its average daily rate in last year's first quarter of $226. 

One of the counter-intuitive reasons Wasiolek is bullish on the region is the tight government controls that also pose a risk to future growth. There are only six gaming licenses currently issued in the region, which welcomed more than 30 million visitors in 2016. 

Tight government controls provide a barrier for entry from competitors that protects the market shares of Wynn, MGM, Las Vegas Sands, Melco Crown Entertainment  (MPEL) , SJM Holdings and Galaxy Macau

The Chinese government's tight grip on regulation is not without risks. "While unlikely, the Macau/Chinese government could award additional gaming licenses that would increase market competition," Wasiolek noted. "In an extremely unlikely scenario, the Macau and Chinese government could exercise its right to seize and take control of all operations on the island."

As for competition back in the U.S., looser government regulation means lower barriers to entry and newer competitors jumping in to take market share. 

"The Las Vegas Strip is highly cyclical and depends on business travel and personal travel expenditures. During the most recent recession in the U.S., gaming revenue there declined 19%," Wasiolek wrote.