Just as concerns over the U.S.-China trade war subsided, a viral outbreak from China is causing a new headache for investors in Nevada-based Macau casino operators.
Shares of MGM Resorts International, Las Vegas Sands Corp. and Wynn Resorts tumbled Tuesday following downgrades from analysts worried the outbreak of coronavirus could impact travel into Macau.
The declines come as the Macau market readies for the Chinese New Year holiday, a period of tremendous visitation. The month is expected to boost Macau’s casino industry, which is looking to rebound seeing gaming revenue 3.4% in 2019, the special administrative region’s first annual revenue drop since 2016.
Last week, the U.S. and China signed an agreement aimed at easing a trade war that has rattled markets and weighed on the global economy.
On Tuesday, the Centers for Disease Control and Prevention confirmed the first U.S. case of the coronavirus, which has now killed six people in China.
“We’re seeing headline risk introduced to the market and any time there’s new uncertainties, we see more volatility and flight to quality and investors fleeing risk assets,” Charlie Ripley, senior market strategist for Allianz Investment Management in Minneapolis, told Reuters News Service.
As for Macau, casino stocks took it on the chin Tuesday.
Shares of MGM Resorts fell 6.22%, or $2.15, to close at $32.39 on the New York Stock Exchange. Wynn Resorts shares were down 6.14%, or $9.31, to close at $142.31 on the Nasdaq.
Meanwhile, Las Vegas Sands Corp. saw its shares tumble 5.40% or $4 a share, to close at $70.06 on the New York Stock Exchange. The decline followed a downgrade in the company by Morgan Stanley. The investment house’s gaming analyst, Thomas Allen, said Las Vegas Sands is more vulnerable to issues in Macau because of its heavy focus on Asia.
Las Vegas Sands collects roughly 65% of its quarterly revenues from its properties in Macau and Singapore.
“There’s risk mass growth could come in even lower as net rooms growth will be essentially flat and hotel occupancies have surpassed Vegas, with the Macau tourism office suggesting last week that visitation could decline in 2020,” Morgan Allen gaming analyst Thomas Allen warned investors.
Las Vegas Sands is spending more than $5.5 billion on renovations and expansions to its existing resorts in Macau and Singapore, which, combined, provide the company approximately 85 percent of its total quarterly revenue stream.
In Macau, more than $2 billion over the next two years is going into the renovation, expansion and rebranding of its Sands Cotai Central complex into The Londoner Macau, a London-themed resort first announced in 2017. Sands will also spend $400 million for the 370-suite St. Regis Tower Suites and $450 million for the 290-suite Four Seasons Tower Suites, both of which are expected to be completed by the first quarter of 2020.
Last year, Las Vegas Sands said it would spend $3.3 billion on Marina Bay Sands in Singapore, which includes a 15,000-seat arena, a 1,000-room hotel, and additional convention space. Expansion to the resort’s casino – one of two in the island nation – is not part of the project.
Morgan Stanley dropped Las Vegas Sands to an Equal Weight rating from Overweight and gave the company a price target of $72 per share.
#exclusive – Viral outbreak causes U.S. stock markets to hammer Nevada-based Macau casino operators. –@howardstutz, CDC Gaming Reports. https://t.co/4FsNafJDeh #CDCgaming
— CDC Gaming Reports (@CDCNewswire) January 22, 2020
The International Monetary Fund (IMF) lowered its global economic growth forecast Tuesday based on the outbreak while the BBC reported that The World Health Organization (WHO) will consider declaring an international public health emergency over the virus, on Wednesday, just as it did with swine flu and Ebola. Such a declaration, if made, will be seen as an urgent call for a coordinated international response.
China’s National Health Commission on Monday confirmed for the first time that the infection could be transmitted from human-to-human. It said two people in Guangdong province had been infected in this way.
(Seeking Alpha, Reuters and BBC contributed)
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
