We’re deep into fourth quarter earnings season and so far so good.
Results are coming in about as expected and the current outlook remains the same—strong regional markets, a booming Las Vegas locals market, Macau and Las Vegas slowing but still overall strong.
Casino stocks have come storming back after a lousy 2018 that ended with a disastrous December. Fantini’s North American Gaming Index rose 18.35 percent year-to-date through February 13, for example.
However, there might be some clouds starting to enter the crystal blue sky.
MGM Resorts’ stock fell 6.36 percent the day after its fourth quarter conference call as the company decided to not provide near-term financial guidance.
CEO Jim Murren, normally nearly boisterous in his optimism on such calls, sounded a tone that Carlo Santarelli of Deutsche Bank described as balanced and cautious. That, Santarelli said, could unnerve some investors.
Of course, Murren might intentionally be adopting a more conservative tone given the criticism he took after the company missed third quarter expectations.
Still, the sell-off suggests that some investors were unnerved. MGM’s peers, Wynn Resorts and Las Vegas Sands, sold off 2.66 and 1.66 percent, perhaps in sympathy.
Of course, a little selling off can be expected for stocks that, as of the 13th had risen double digits:
Wynn +29.0 percent
MGM +20.5
Las Vegas Sands +15.0
More regionally oriented casino stocks have enjoyed bigger jumps. For example:
Caesars +38.5 percent
Boyd +32.7
Eldorado +31.8
Penn National +30.4
Churchill Downs +16.8
But there might also be some concern that the US economy is slowing, too, which would take some wind out of the sails of regional casinos.
Still, gaming stocks appear to be reasonably priced and further advances would seem reasonable if the economy continues humming along.
Open questions in Macau include the transition to a Las Vegas-type full-fledged tourist destination. The conventional wisdom is that Macau can ride a rising tide of growth in China’s affluent middle class that might create some disruptions as junkets and VIP play diminishes in importance if not in raw numbers.
Macau also faces increasing international competition for those VIPs with the growing Philippines casino-resort industry, NagaWorld in Cambodia expanding VIP business, and Australia’s casinos being ambitious. In that environment, Macau could find that its new smoking ban and continuing crack down on ways to take cash out of China could benefit those rising competitors.
One of the optimistic signs for Macau was double-digit growth in the number of visitors during Chinese New Year. But it might be a while before we learn whether that growth, much of if fed by the new bridge connecting the city to Hong Kong and the Mainland, is in the sought-after premium mass-market players, or just Lookie Lous now able to conveniently reach Macau thanks to the bridge.
The questions over the near-term direction of the gaming industry extend even to the new world of legal sports betting in the United States—whether that be U.S. Department of Justice opinions that could limit expansion or a reminder by disappointing Super Bowl results that growth might not be a straight rocket ride up.
So ,there is a healthy industry, stocks at reasonable prices, and reasons to be cautious. In other words, a lot for investors to monitor and think through.
