The Zacks Analyst Blog Highlights: Las Vegas Sands, MGM Resorts International, Melco Crown Entertainment, Wynn Resorts and Bayer
CHICAGO, Sept. 22, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Las Vegas Sands Corp. (NYSE:LVS-Free Report), MGM Resorts International (NYSE:MGM-Free Report), Melco Crown Entertainment Ltd. (Nasdaq:MPEL-Free Report), Wynn Resorts Ltd. (Nasdaq:WYNN-Free Report) and Bayer (OTC:BAYRY-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Friday's Analyst Blog:
How Are Macau Losses Turning into Las Vegas Gains?
Macau and Las Vegas, the two top gambling destinations in the world, seem to be displaying an inverse correlation. Reportedly, Macau's recent weakness has translated into gains for Las Vegas, as it is cashing in on the visits from high spending Chinese gamblers who are moving to the strip to try their fortunes. Other top destinations that are attracting VIP gamblers include the Philippines and Melbourne, Australia.
What's Going Wrong for Macau?
The Chinese government announced in May 2014 that it would take adequate measures to restrict illegal money transfers from mainland China to Macau casinos. The government's crackdown on corruption, which includes restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau, has affected footfall at the casinos.
Limitations like the one on the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. Since the new restrictions on UnionPay machines and visa restrictions came into effect, VIP customers have become more cautious and have started avoiding Macau, resulting in lower revenues. Moreover, a cooling Chinese economy has lowered consumer spending.
Through July, casino revenues on the Las Vegas Strip were reportedly up 3.7%, attributable to a 14.4% rise in baccarat revenues. Since Mar 2014, the region has not posted any decline in revenues. On the contrary, gross gaming revenues (GGR) in Macau – the only place in China where gambling is legal – have been declining consistently after UnionPay restrictions. Gross gaming revenues for the month of August, July and June 2014 have declined 6%, 3.6% and 3.7%, respectively.
The Worst Not Over Yet
A few analysts expect gross gaming revenue (GGR) in Macau to decline again for the month of September. Some analysts also believe that Macau has not hit the bottom yet and chances of further downside remain. Moreover, a few analysts expect revenues from VIPs in the Chinese city to continue to contract for another six to nine months.
As a result, several analysts have downgraded their ratings and lowered estimates for revenue and target prices, given the tepid environment. All these have adversely impacted the share price of companies like Las Vegas Sands Corp. (NYSE:LVS-Free Report), MGM Resorts International (NYSE:MGM-Free Report), Melco Crown Entertainment Ltd. (Nasdaq:MPEL-Free Report) and Wynn Resorts Ltd. (Nasdaq:WYNN-Free Report) that earn a majority of their revenues from the region. Year-to-date share prices of Melco Crown, Las Vegas Sands, Wynn Resorts and MGM Resorts have declined 30.7%, 18%, 3.4% and 1.4%, respectively.
Moreover, an impending ban on smoking from October would further reduce footfall. Also, aware of the profits that the operators earn, casino employees are now demanding wage increases and benefits. In order to retain these employees, these casino companies would be compelled to hike wages, which would adversely impact their margins, going forward.
Factors Driving Traffic to Las Vegas
Besides the fact that the crackdown in Macau has diverted traffic to Las Vegas, the latter has displayed positive indicators of late. The region has rebounded strongly from the recession owing to regional demographics and economic diversity. Its robust recovery has reportedly earned Las Vegas an Aa2 rating with a stable outlook from Moody's.
According to the Center for Business and Economic Research at the University of Nevada, the Southern Nevada economy has seen strong growth in 2014 and the Las Vegas strip has been the biggest beneficiary.
Bayer to Shed MaterialScience Business, Shares Rise
Bayer (OTC:BAYRY-Free Report) announced its intention to shed its MaterialScience business and focus fully on its Life Science businesses - HealthCare and CropScience. Bayer's shares gained almost 6% following the announcement.
The MaterialScience business is expected to trade in the stock market as a separate company within the next 12 to 18 months. The segment, which will have a global workforce of 16,800, is expected to have a separate name.
The MaterialScience segment is one of the world's largest polymer manufacturers and will become Europe's fourth-largest chemical company when it starts trading separately, as per Bayer. MaterialScience will have direct access to capital for its future development.
What is in it for Bayer?
Although Bayer's MaterialScience business was the second highest (28%) contributor to its top line in 2013, the segment has been performing poorly in the last couple of years. Segment sales were down 2.2% year over year to €11.2 billion in 2013 while sales from the company's HealthCare and CropScience segments increased 1.7% and 5.2% to €18.9 billion and €8.8 billion respectively in the year.
Revenues from the HealthCare segment are expected to display mid- single-digit percentage growth with segmental revenues of around €19.5 billion in 2014. Sales from the CropScience segment are expected to display high single-digit growth.
As a result of the divestment of its MaterialScience segment, Bayer can focus on its better performing businesses. Primarily, the HealthCare segment has been driving growth at the company. The addition of newly approved pharmaceutical products like Xarelto, Eylea, Xofigo, Adempas and Stivarga has given a boost to the HealthCare segment at Bayer. All these products have performed encouragingly since their launch and are expected to do so in the future.
These new products are expected to contribute around €2.8 billion to segmental sales in 2014. The company is also looking to expand their label beyond current indications. Label expansion of these drugs will drive growth further.
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