Citi Is Bullish On Casino Stocks Despite Macau Weakness

Analysts at Citi recently took an in-depth look at the gaming industry and released reports on the top names in the business. Citi chose Wynn Resorts Ltd WYNN 0.13% as its top pick in the U.S. gaming space, but they are bullish on the three other large players as well.

Weakness In Macau

Citi analysts recently lowered their 2015 outlook for Macau gaming due to the “harsh realities” of the current VIP environment. The most recent Citi forecasts call for 16 percent year-over-year drop in gross gaming revenue (GGR) in Macau. The reduced revenue forecast has led to price target reductions for all the names in the space, but analysts remain bullish overall on the stocks.

Las Vegas Sands Corp LVS 1.12%

Citi analysts see Las Vegas Sands as the most defensive name in the group. Analysts believe that the stock’s 4.5 percent 2015 dividend yield, which the company recently increased by 30 percent over 2014, is solid.

With about 1500 tables already up and running, Sands China has the most tables of any of the U.S.-listed names in Macau. Analyst see this large number of tables as a potential reason why the company’s next resort to open in Macau, the Parisian, could only get approved for about 100 additional tables by the Chinese government.

Citi reduced its price target for Las Vegas Sands from $68 to $66 but maintains a Buy rating on the stock.

MGM Resorts International MGM 0.68%

Citi analysts see a strong development pipeline paving the way for strong future growth for MGM. They are predicting 250 additional tables to be approved for MGM’s new MGM Cotai resort. If MGM moves about 150 of its 420 current tables to the new resort when it opens, analysts believe that a 400-table MGM Cotai will produce EBITDA of $653 million.

Citi reduced its price target for MGM from $28.50 to $27.50 but maintains a Buy rating on the stock.

Melco Crown Entertainment Ltd MPEL 3.09%

Citi analysts see Melco’s Studio city as “the game changer” for the company.

“Studio City has more non-gaming amenities than all other IRs in Macau combined (including Asia’s highest ferris wheel, a Warner Bros.-themed Family Entertainment Center, the world’s first Batman film franchise digital ride). We believe this is what the government is looking for,” analysts explain.

They believe that these non-gaming attractions will lead the government to approve about 250 new tables for the resort, which is slated to open this year.

Citi reduced its price target for Melco from $39 to $36 but maintains a Buy rating on the stock.

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