Shares in several major resort and casino companies were on the rise as analysts boosted their ratings to reflect growing business in China's Macau. The S&P 500 Casinos & Gaming Sub Industry Index posted gains of over 5 percent as the sector as a whole was on the rise.
Brighter Macau Outlook Drives Rally
Macau, an island located just 37 miles from Hong Kong, is the only place in China with legalized gambling and features the biggest casino market in the world. As such, major casino brands like Wynn Resorts (WYNN), Las Vegas Sands (LVS), and MGM Resorts (MGM) all opened hotel/casinos on the island between 2004 and 2007. Casino shares have had a rocky year over the course of 2011 as Las Vegas revenues dipped and analysts kept expecting a pullback in Macau. However, the Government's Secretary for the Economy and Finance in China announced Friday after market close that Macau was projected to bring in over $10 billion in tax revenue in 2012. This would seem to indicate that Macau isn't poised to slow down as an engine for growth, with some projections for 2012 expansion exceeding 20 percent.
"We detected a whiff of caution during our trip given the state of the global economy, particularly in Europe, and the potential for slowing Chinese gross domestic product growth," Credit Suisse gaming analyst Joel Simkins told investors after returning from a research trip to Macau. "We believe business in Macau largely remains on trend." Gains are expected to continue as Macau, largely dependent on unpredictable VIP business in the past, attempts to expand their appeal to more middle class Chinese people. Plans for a resort city at the neighboring Hengqin Island look to dramatically improve Macau's prospects in coming years.
Most major resort and casino stocks, which generally move as a bloc, also benefited from analyst upgrades for Wynn coming from both Citigroup (C) and KeyCorp's (KEY) KeyBanc Capital Markets. Dennis Forst of KeyBanc said that Macau should continue to drive revenues in explaining his rating upgrade of Wynn's stock from Hold to Buy, stating "... [Macau] remains the most vibrant gaming locale in the world with both visitation and spend per visit continuing to improve. ... Wynn Resorts' focus on the VIP segment of the Macau market and its high-end dominance should give investors solace, as we expect affluent Chinese and American clientele to hold up better than the mass market in any economic shock scenario."
Shares Up Across Sector
The belief that gains in Macau won't slow down helped push up share prices for several of the largest casino companies, with Wynn gaining nearly 6.5 percent, Las Vegas Sands up over 5.5 percent, and MGM Resorts jumping over 4.5 percent.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer