Gambling Stock Roundup: Macau Show Disappoints, MGM & BYD Provide Buyout Updates

It was a busy week for the gambling industry, with some of the major companies witnessing a decline after May gambling revenues from the Macau region missed analyst expectations. Shares of companies such as Melco Resorts & Entertainment Ltd. (NASDAQ:MLCO) , Wynn Resorts, Limited (NASDAQ:WYNN) and Las Vegas Sands Corp. (NYSE:LVS) declined following the news.

On the other hand, stocks like MGM Resorts International (NYSE:MGM) and Boyd Gaming Corp. (NYSE:BYD) ended the last week on a positive note. While MGM Resorts signed an agreement to buy Empire City Casino's race track and casino, Boyd Gaming completed the acquisition of Lattner Entertainment Group Illinois, LLC.

Recap of the Week’s Most Important Stories

Macau’s Lower-Than-Expected Gambling Revenues

Gambling revenues from Macau increased 12.1% to 25.5 billion patacas ($3.16 billion) in May. The metric not only lagged analyst expectations but also declined 0.9% from the figure registered in April. Although gambling revenues were up for the 22nd straight months, it still remains below the highest level achieved in 2012.

A tough operating environment in Macau weighed on casino stocks from June 2014 to most part of 2016. In fact, the crackdown on corruption in China compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

As a result, footfall declined at the local casinos, leading to a constant decrease in gaming revenues. A slowdown in China, tighter visa policies, political unrest and a smoking ban on mass market gaming floors compounded the woes. Nevertheless, Macau's gambling revenues marked a turnaround and have been rising since the second half of 2016, with new resorts attracting high rollers and leisure gamblers.

MGM Resorts to Buy Empire City Casino

MGM Resorts and MGM Growth Properties LLC have reached an agreement to buy Empire City Casino's race track and casino. If Empire City gets a license for live table games on or before Dec 31, 2022 and MGM Resorts accepts it by Dec 31, 2024, then the latter will pay an additional amount of $50 million to the former. Valued at $850 million, the deal is expected to close in first-quarter 2019.

On completion of the deal, MGP will acquire the developed real property related to Empire City from MGM Resorts and will lease it to a subsidiary of the same. MGM Resorts subsidiary will control the property. The deal will help the company solidify its position on the East Coast, where MGM Resorts has been constantly increasing its presence over the past two years.

MGM Resorts said that “With Empire City's approximately 40 percent share of gross gaming revenues in the market, we believe there are significant opportunities for MGM Resorts to further drive growth.” The company expects the deal to be value assertive within the first year of closing. In 2017, Empire City recorded net revenues of nearly $230 million and $70 million in adjusted EBITDA.

We believe this latest buyout will be a major growth driver for the company. This is because Empire City Casino not only has 5,200 slots and electronic table games but also offers live and simulcast horse racing, besides numerous dining outlets.

MGM Resorts has a Zacks Rank #4 (Sell).

Boyd Gaming Closes Lattner Entertainment Group Buyout

Boyd Gaming has completed the previously announced acquisition of Lattner Entertainment Group. Following the news, the company’s shares gained 2.3% on May 1, 2018. The value of the deal was $100 million. Currently, in Illinois, Lattner Entertainment operates approximately 1,000 gaming units in 220 locations. This acquisition is expected to help the company diversify its business.

Boyd Gaming has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

The following table shows the price movement of the major gambling stocks in the past week and the last six months:

In the last five trading sessions, Boyd Gaming, Las Vegas Sands Monarch Casino & Resort, Inc. (NASDAQ:MCRI) and MGM Resorts were the top gainers.

Also, key sector participants like Pinnacle Entertainment, Wynn Resorts Melco Resorts, Las Vegas Sands and Boyd Gaming were the major gainers in the past six months.

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