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Casino stocks rally as Macau's May gaming revenues crush estimates

  • May marked the tenth consecutive month of gaming growth in Macau.
  • Continued strength in June could lead to Wall Street hiking second-quarter casino operator forecasts.
  • VIP market trends in Macau remain favorable but some analysts see headwinds longer term.
Macau casino
Philippe Lopez | AFP | Getty Images

Casino stocks are posting big wins Thursday on Macau's gross gaming revenue in May sharply beating industry analysts' expectations.

In intraday trading, Las Vegas Sands is up nearly 4 percent and Wynn Resorts ahead more than 4 percent. And MGM Resorts is up just over 2 percent.

Macau GGR had been expected to grow about 16.5 percent for the month of May but came in at 23.7 percent.

"We believe a strong start to June could lead to the Street's estimates, and ours, to move higher ahead of earnings reporting season in mid-July," said Telsey Advisory Group casino analyst David Katz in a research note to clients.

Added Katz, "Coupled with the 16.3 percent growth in April, we believe it is a fair conclusion that the new properties in the market, including LVS' Parisian and WYNN's Palace are growing the market rather than cannibalizing the existing properties."

May marked the tenth consecutive month of gaming growth in the world's largest gambling mecca.

"Based on our on-the-ground conversations, we believe that the mass market trajectory seen in 1Q17 (up 15 percent) has carried through into 2Q and is likely now in the high teens," said Union Gaming analyst Grant Govertsen in a report Thursday.

Wynn Resorts is one Macau operator that "continues to outperform the market by a very wide margin," Govertsen said.

Overall, he said growth in the mass-market segment in Macau is helping "most of the Macau Big-6." The VIP segment, meanwhile, is showing "accelerating" growth but he cautioned that's partly due to easy comparisons.

Indeed, Bernstein analyst Vitaly Umansky also voiced caution when looking at Macau trends, particularly "the accuracy of weekly channel check estimates and the strength (and volatility) surrounding VIP."

According to Umansky, "High hold rates in VIP along with continued volume strength creates volatility and lack of ability to more accurately forecast the monthly trend."

That said, the Bernstein analyst added that the firm's channel checks during the month appear to show Macau operators Wynn Resorts and Galaxy Entertainment Group having month-over-month gains in market share, with Las Vegas Sands among those showing "deterioration." He said MGM's market share was "generally unchanged" during the same comparison period.

Looking ahead, Umansky forecast in a report that Macau's June gaming revenues would be up between 20 to 26 percent.

"The Macau gaming industry has now shown a strong recovery from over two years of declines," said the Bernstein analyst. "We continue to view the industry as a secular growth story driven by the paradigm shift from VIP to mass."

He said the VIP market has exhibited "considerable strength over the past half year," although he added that over the long haul this segment of the market "will continue to face structural headwinds from a tightening regulatory environment in Macau."