The casino group has been one of the hottest sectors over the past two years during the economic recovery. After strong runs, they have mainly stagnated over the past several months. Active traders have been frustrated of late trying to catch a meaningful bounce, but a catalyst just might come Thursday with the earnings report from Las Vegas Sands Corp (LVS: 49.18, 2.69).
LVS has been an unstoppable force since hitting lows of under $2 in March 2009, but was pegged back a notch late last year when two new land grants in Macau were turned down. While the city Las Vegas has seen a tepid revival, it has been Macau that has driven growth for the large casino companies. CLSA Ltd. last week upgraded growth estimates for 2011 Macau casino revenue to 30% from 20%, after nearly 58% growth in 2010.
With building in Macau slowing down, more of the Macau revenues will begin to flow into the bottom line for LVS, Wynn Resorts Limited (WYNN: 119.16, 2.83), and, to a lesser extent, MGM Resorts International (MGM). LVS still has two new developments likely to open later this year on the Cotai Strip in Macau. The Cotai strip could do to the Macau Peninsula what the Vegas strip did to Downtown Las Vegas many years ago. LVS has also opened a successful casino in Singapore (Marina Bay Sands).
Due to their greater exposure to Macau, our favorites in the group are LVS and WYNN.
LVS has bounced off the $44 area twice now, and is now surging through $48 this morning. We don't see any reason why LVS would not meet expectations in Thursday's earnings report, and feel there is the potential for a solid beat. LVS has room to run to highs above $55.
While LVS has more irons in the fire in Macau, WYNN still continues to be the true group leader. Goldman analysts raised the earnings per share estimates for WYNN in a research note to investors Monday, while Bank of America Merril Lynch analysts raised their price target to $140 from $120 last week. WYNN reports earnings on February 25.
Whereas LVS has been in a long-term wedge pattern, WYNN is basing near the highs. A break above the recent high of $120 would spark a measured move to the B of A/Merril price target of $140. Isn't it great when technicals and fundamental agree?
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