FY2015 Will Remain A Game Spoiler For MGM Resorts International (NYSE:MGM)

The shares of MGM Resorts International (NYSE:MGM) were battered after Deutsche Bank AG’s recommendation for casino operators came in concert with other major investment banks. The research firm recommended ‘Sell’ on all of the six Macau casino operators as it considers the recovery in the space a distant possibility. The feedback from the firm pushed the stock more than 4% lower to $20.03.

Read why analyst may see a swing in the momentum for MGM.

No recovery

Analyst Karen Tang mentioned in a note to investors that a boost in casino demand will not be likely this year even as two new gaming venues are set to open. She said that the market is unable to figure out the extent of pressure on the casino operators’ profit margin. In her note, Tang said that the gaming revenue could fall further by 30% in 2015 as compared to the earlier prediction of 13% fall, which may roll over to 2016 as well. Agreeing with Tang’s views, KGI Asia Ltd’s director Ben Kwong said that it is unlikely for brokers to recommend a buy for gaming stocks such as MGM Resorts International (NYSE:MGM).

Anti-Graft initiative

Deutsche went ahead to trim ratings on five of the casino operators to ‘Sell’ from ‘Hold’, prompting heavy sell-off in the stocks. Moreover, these stocks accounted for the biggest fall on the MSCI Hong Kong Index that slipped 0.9%. A Bloomberg data show that the market value of the gaming companies has come down by nearly $92 billion over the last one year. Casino revenues stood hurt as Chinese President Xi Jinping issued stricter norms to prevent bribery. Most of the VIP gamblers were seen out of the casinos iN February. At the same time, the economic slowdown added to the woes of the gaming operators as they saw less crowd and footfall.

Earlier this week, JPMorgan Chase & Co has projected an 18% fall in the gross gaming revenue in FY 2015. On the other hand, HSBC and Citigroup have estimated 21% and 16% fall in the revenue respectively. Barclays Plc too anticipates revenues to fall until the fourth quarter.

About the Author

Coper graduated from the University of Chicagi with majors in political science and journalism.

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