Press Your Luck on Macau Casino Stocks

In September, I wrote that none of the Macau casino stocks were a compelling
value . The shares have slumped because of concerns abut an economic slowdown in
Asia and are getting too cheap to ignore. Shares of Wynn Resorts (NASDAQ: WYNN
), whose Macau property features a 222,000-square-foot casino, 600 luxury rooms
and suites along with 46,000 square feet of retail space, have been pushed down
more than 11% in the past month. Las Vegas Sands (NYSE: LVS ) owns three
properties in Macau. Its shares fell more than 7% during the past 30 days. Melco
Crown Entertainment (NASDAQ: MPEL ), a Hong Kong-based operator with properties
in Macau, is down more than 23% during that same time. Although there is
legitimate concern about the Chinese economy overheating, there is no evidence
as of yet anyway that this is significantly affecting the corporate junket
business, which is the lifeblood of Macau. However, fears of a credit crunch
recently jarred casino stocks. Still, regional casino revenue gained 38.8% in
September , the first time it grew less than 40% since January, according to
local media reports. Compared to Nevada, where casino revenue gained 3.7% in
July, those results are outstanding. The news about the Chinese economy is not
all bad, either. Premier Wen Jiabao recently was quoted as saying that the
world's most populous country has made progress in taming inflation .
China's real estate bubble, though, remains a concern. Wynn Resorts, which
gets about one-third of its revenue from Macau, and Las Vegas Sands, which gets
40% of its sales, both seem like compelling values. Wynn, controlled by Stephen
Wynn, trades at a price-to-earnings multiple of 39. Las Vegas Sands' multiple
is 33.25. Melco Crown's valuation is a lofty 42.37. Although these shares are
trading at a premium to the S&P 500 multiple of 15.02, Wall Street analysts rate
all three shares as a buy. Wynn Resorts, which last traded at $130.66, is
expected to hit $170.52, the median price target of Wall Street investors.
Analysts have a mean price target of $58.04 on Las Vegas Sands, well ahead of
the $41.63 level where they recently traded. Wall Street's one-year target on
Melco's ADRs is $16.31. Melco Crown surged 14% Thursday to $9.56, and Wynn and
Las Vegas Sands also jumped on the day. If investors have to choose one Macau
stock, I would go with Wynn since it's the only one of the three that pays a
dividend. The other attraction to Wynn is its U.S. properties since gaming will
continue to rebound unless the economy really craters. Plus, revenue in the
current quarter is expected to rise more than 28%, surpassing the 23% expected
at Las Vegas Sands and nearly matching the 29% expected at Melco Crown. The
Asian company, however, seems far too pricey compared to its U.S. rivals.
Investors also might want to wait for shares of the Macau stocks to become more
affordable. But if people are wondering whether these companies are worth a
gamble, the answer is "yes." As of this writing, Jonathan Berr did not own a
position in any of the aforementioned stocks.