It was a mixed bag for gambling stocks last week. After posting sluggish revenues for the past few months, revenues in Nevada went up for the month of January. Additionally, an improving economy led to the end of five straight declining months of gaming revenues on the Las Vegas Strip.
On the earnings front, Monarch Casino & Resort Inc (NASDAQ:MCRI) and Isle of Capri Casinos Inc (NASDAQ:ISLE) beat the Zacks Consensus Estimate on both the top and the bottom line for the second consecutive quarter. Meanwhile, Churchill Downs Incorporated (NASDAQ:CHDN) posted mixed results wherein the company incurred a loss worse than the Zacks Consensus Estimate while revenues were ahead of the consensus.
However, the overall optimism was muted by the fact that the Macau government is intending to take actions that would curb the number of tourists in the city. (For earlier developments in the space read: Gambling Stock Round Up for Feb 17, 2015)
Recap of the Week’s Important Stories:
1. Nevada started the year on a positive note. Per Nevada Gaming Control Board, revenues in Nevada went up approximately 7.8% for the month of January. Meanwhile, revenues on the Las Vegas Strip that accounts for more than half of the state’s total revenues surged 15.4%, bringing an end to five consecutive monthly declines.
Increasing attendance at the Consumer Electronics Show and strong footfall on New Year’s Eve led to the growth in January numbers, particularly in baccarat revenues. Baccarat is a lucrative but volatile card game which is often a big reason behind swinging casino fortunes. Also, improving housing trends, falling unemployment and a fall in gas prices drove the upside.
Unfortunately, the top-line growth was not uniform across Nevada. Total volume was also still down for the fifth consecutive month.
2. Moving to another hot gambling destination, Macau, its Secretary for Social Affairs and Culture, Alexis Tam, has reportedly stated that the tourist capacity of the city is a “serious problem.” Visitors from mainland China account for the majority of Macau tourists.
The government has recognized that there are far too many tourists in the city, which is adversely impacting the quality of life of its residents. Therefore, the Macau government wants to reportedly impose restrictions on the number of mainland tourists visiting the city and plans to discuss the issue with Beijing soon. (Read: Macau to Limit Tourists: Time to Dump Gambling Stocks?)
3. Monarch Casino & Resort posted better-than-expected fourth quarter results with earnings of 22 cents per share beating the Zacks Consensus Estimate of 14 cents by 57% and increasing 83.3% year over year. The upside reflects improved revenues and lower interest expenses. Net revenues of $45.6 million beat the consensus mark of $45.0 million by 1.3%. Also, it increased 3% year over year, thanks to improving performance at Monarch Black Hawk as well as Atlantis.
Despite an approximate 2% increase in expenses due to higher food and labor costs, the revenue upside drove an 8% increase in adjusted EBITDA to $9.5 million. Shares gained 2% in response to the beat.
In order to capitalize on the Denver metropolitan area's strong economic environment and ultimately grow the Black Hawk market, the company announced that it is planning to expand and convert Monarch Black Hawk into a full-scale casino resort. The project will feature a hotel tower with approximately 500 rooms and will roughly double the size of the existing casino. Currently, the company expects costs in the range of $285 million to $295 million for the expansion.
4. Isle of Capri delivered strong third quarter fiscal 2015 results with adjusted earnings of 13 cents per share comparing favorably with the breakeven Zacks Consensus Estimate. Further, earnings compared favorably with the year-ago loss of 12 cents, primarily due to the improvement in revenues and margins.
In fact, the company’s revenues of $241.1 million beat the Zacks Consensus Estimate of $226 million by 6.7% and increased 7.5% year over year primarily due to higher Casino revenues and Food, beverage, pari-mutuel and other revenues. Revenues increased across all its regions.
Over the past 18 months, the company has been implementing operational changes. The company believes that it continued to realize the benefits of those efforts for the fourth consecutive quarter. Investors responded overwhelmingly with a share price surge of 18%.
5. After posting profits for two quarters in a row, Churchill Downs incurred an adjusted loss of 66 cents per share in the fourth quarter of 2014. This was much wider than the Zacks Consensus Estimate of a loss of 30 cents. The company had generated earnings of 10 cents per share in the year-ago quarter. The downside was largely due to a spike in selling general and administrative and interest expenses.
Net revenues of $168.3 million beat the Zacks Consensus Estimate of $156.0 million by approximately 8% and went up 3.7% year over year. The top line included revenues from Big Fish Games that was acquired in Dec 2014, partially offset by the loss of revenues from the cessation of pari-mutuel operations at Calder Race Course.
Share Price Performance
Over the last five trading days, share prices of most of the gambling companies declined with Melco Crown Entertainment Limited (NASDAQ:MPEL) suffering the largest decline of 12.5% followed by a 10.1% fall at Wynn Resorts Limited (NASDAQ:WYNN). Share prices of MGM Resorts International (NYSE:MGM) and Las Vegas Sands Corp (NYSE:LVS) also fell on news of likely limitations being placed on tourists in Macau, a key operating region for these companies. Also, analysts’ expectation of Macau gambling revenues declining somewhere in the band of 50% and 55% for the month of February led share prices to plummet further.
Over the last six months, share prices of most of the gambling stocks lost value with Caesars Acquisition Company witnessing the maximum decline of 28.5% followed by a decline of 18.2% by Caesars Entertainment Company. However, Boyd Gaming Corporation gained 35.4% over the same time frame.
What’s Next in the Gambling World?
Caesars Entertainment with a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00% is scheduled to report fourth quarter and full year results today.
We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect this volatile movement to continue in the coming days as well.