The COVID-19 outbreak has been wreaking havoc on the market over the last month, and among those that have been hit the hardest have been casino stocks.
Gambling revenue in the Chinese territory of Macau dropped 11.3% year-over-year in January as the world’s biggest casino hub turned into a ghost town. According to Macau’s Gaming Inspection and Coordination Bureau, total visits during the Lunar New Year holiday were down 78% driven by an 83% decline in visitors from China.
The city asked all casino operators to suspend operations for two weeks during the peak Lunar New Year holiday season to help curb the spread of the virus outbreak.
The largest casino operators in Macau, including Las Vegas Sands (NYSE: LVS), MGM Resorts International (NYSE: MGM), Wynn Resorts (NASDAQ: WYNN), and Melco Resorts & Entertainment (NASDAQ: MLCO), all ended January in the negative with LVS and MGM both down nearly -8%, WYNN down -12%, and MLCO down nearly -20%.
But casino stocks began to bounce back in February as the market’s concern over the spread of the outbreak lessened. And on Thursday this week, operations at the casinos in Macau are set to reopen, which is likely to be a catalyst for casino stocks.
According to Strategic Wealth Partners CEO Mark Tepper, a return to regular business is good news for casino stocks.
“Gambling is addictive so there’s obviously going to be pent-up demand and all these gamblers missed out on the biggest time of the year which is the Chinese New Year. So they want to get out and gamble,” Tepper said.
But of the biggest names in the space, there’s one casino stock in particular Tepper has his eye on.
“I own and I like LVS,” Tepper said. “It’s a play on the Chinese consumer. This is a long-term play. The consumer in China is making more and more money, year after year after year. You have a true growing middle class in China – we have a strong middle class in the U.S., but it’s a very mature middle class. So, yes, as a long-term play, I think the spending does come back. I think LVS is a good play.”
Las Vegas Sands generates roughly 63% of its revenues from its presence in Macau, and another 22% from Singapore. Bank of America upgraded LVS shares to the equivalent of a Buy and issued an $80 price target for the stock – nearly 16% higher than the current price.
Blue Line Capital’s Bill Baruch said, however, that it’s too soon to tell how the coronavirus outbreak will impact those casinos with exposure to Macau. Still, he said one casino stock looks attractive for an unrelated reason.
“I think there’s an attractive play here in MGM with sports gambling becoming legal here in the U.S. and some expansion there,” Baruch said. “I think MGM has a little bit of a lead there.”
Looking at things from a technical perspective, Baruch said, “There’s an uptrend line on MGM I’m looking at $28. All these stocks have held in very well given the recent news, but if we see another downdraft I’m looking at MGM at $28 and there’s where I’d look to be a buyer.”
MGM shares would need to drop -12.7% to reach Baruch’s $28 buy level.
Last week, MGM Resorts shares took a hit after the company withdrew its 2020 forecast as it assesses how the coronavirus outbreak will impact its operations and announced chairman and CEO Jim Murren is stepping down.
“Although the outbreak has been largely concentrated in China, to the extent that the virus impacts the willingness or ability of customers to travel to the company’s properties in the U.S., the company’s domestic results of operations could also be negatively impacted,” MGM said in a statement.
“While the coronavirus will clearly have a near-term impact to MGM China, we remain confident that it will not have a long-term impact on our business,” said Murren on a call with analysts.