International edition
June 20, 2021

The upgrade came after Deutsche Bank on Tuesday raised its rating on MGM

Macau upturn may be near as sentiment shifts

(Macau).- MGM Resorts International's balanced portfolio of casinos in Las Vegas and Macau, the world's top two gaming spots, has helped make it the apparent favorite casino company of the moment, as it got a second stock rating upgrade this week. Craig-Hallum analyst Bryan Maher upgraded MGM to buy from hold Thursday, citing MGM's improving fundamental trends and saying investor sentiment on Macau is at "maximum pessimism," which indicates a bottom is near. Maher maintained a 28 price target.

T

he upgrade came after Deutsche Bank on Tuesday raised its rating on MGM to buy from hold and lifted its price target to 30 from 29. Deutsche Bank analyst Carlo Santarelli also downgraded Las Vegas Sands, the world's largest casino company, to hold from buy and cut its price target to 65 from 74.

Shares of Macau-centric casinos including MGM, Sands, Wynn Resorts and Hong Kong-based Melco Crown Entertainment were pounded over the summer as Macau posted its first multi-month gambling revenue decrease in years. The slump resulted largely from a crackdown by China's government on junket operators in Macau who allegedly made illegal loans to gamblers. The crackdown made some gamblers stay away. More recently, pro-democracy demonstrations in Hong Kong, just across the strait from Macau, may have driven some business away.

Maher said MGM, the biggest casino operator in Las Vegas, is poised to grow. "I wouldn't call it robust, but there has been a healthy increase in gaming revenue of 5% in Las Vegas on a trailing 12 months basis," Maher told IBD. But the real story is Macau, which generated just above US$ 45 billion in gaming revenue last year, roughly six times that of Las Vegas. 

Recent reports indicate the Chinese government may be scaling back its broad "misbehavior" crackdown. "If the Chinese government takes its foot off the throttle on misbehavior to any degree, it will resonate to a degree throughout the (Macau) market" in a positive way, Maher said.

And China has good incentive to throttle back. "I would submit that with a tax rate in Macau of 39.2% the Chinese government has an extremely vested interest in making sure it thrives," Maher said.

Maher noted that visits to Macau during its Golden Week celebration, which began Oct. 1, rose 17%. "That caught people by surprise. With protests in Hong Kong there was thought it would be weak. But people bypassed Hong Kong and went to Macau. And people in Hong Kong may have gone to Macau to get away from demonstrations," Maher said. MGM shares were down 1.8% in Thursday afternoon trading on the stock market today amid a sector selloff. Sands was down 2%, Wynn 2.4% and Melco Crown 1.6%.

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