Casino stocks are trading lower after reporting weak second quarter results and guidance. In fact, all four of the large cap casinos (Sands, Wynn, MGM and Melco) reported disappointing second quarter results, with slowing growth in Macau being the primary culprit.
However, with a dominant presence on the Strip, MGM (MGM) is much more of a Las Vegas story.
MGM is down 1% after the company missed second quarter profit estimates and gave disappointing guidance for Q3 and FY18. Revenue per available room, or RevPAR, a key metric for the lodging industry, came in at +2.8% vs. +1-3% guidance. However, the company guided for Q3 RevPAR down 5-7% and lowered 2018 RevPAR to a low single digit decline from +1-3% growth previously.
MGM Chief Executive Jim Murren said "Our Las Vegas Strip resorts benefited in the prior year third quarter from a stronger citywide convention base, two major boxing events and a higher than normal table games hold. The difficult comparison in citywide convention attendees has resulted in a more negative than anticipated hotel mix shift creating short-term competitive rate pressure in the current year third quarter. In addition, the transition of Park MGM continues to create short-term headwinds but is on track to complete its transformation by the end of this year."
The timing of big events and conventions often impacts quarterly results in Las Vegas. Casinos make more money off corporate convention bookings compared to leisure travelers.
Mr. Murren has a mixed track record despite being a former sell-side analyst on Wall Street. The company repurchased $595 million in stock during the second quarter, much to the dismay of analysts.
To his credit, MGM remains focused on the long term opportunity and maximizing cash flow and margins. MGM is well positioned in the nascent sports wagering market. The company signed a deal with GVC, Boyd (BYD) and the NBA this week. The Las Vegas Golden Knights were a tailwind last year and the Oakland Raiders will be moving to Las Vegas next year.
MGM hit a sixteen-month low before rebounding this morning.
Yesterday, Caesars (CZR) also warned about Q3 results, calling for RevPAR growth to slow to +0-2% in Q3 from +3.5% in Q2. Caesars said growth would rebound to the double digits in the fourth quarter.
Recent news out of Macau has also been disappointing. Macau gross gaming revenue is up 17.5% year-to-date after rebounding 19% in 2017, but growth has slowed to the low double digits over the last three months.
Wynn (WYNN) is down 6% after reporting disappointing results across the board last night. Wynn was hurt by the slowdown in the Macau VIP market but the company also lost market share. Management said results improved in July. Wynn investors no longer have casino mogul and founder Steve Wynn to lead the way.
Last week, Las Vegas Sands (LVS) reported solid results in Macau and Singapore while Vegas disappointed. Sands hit an eight-month low this morning. The stock sports a 4.1% dividend yield as Chairman and CEO Sheldon Adelson own 53% of the company.
Sands may be a front runner to crack the Japanese market. A huge potential market that may legalize casinos in the coming years.
On the other hand, trade tensions add uncertainty to whether China will renew gaming licenses for US corporations down the road.
Elsewhere in the gaming space, even gaming machine maker Scientific Games (SGMS) is feeling the pain today after missing second quarter estimates last night.
Meanwhile, peer International Game Technology (IGT) is also out of favor after missing profit estimates on Tuesday night.
Las Vegas Sands is the largest and most expensive casino stock with an EV/EBITDA multipole of close to 12x. Wynn and MGM trade with multiples one and two turns lower, respectively.