Having Surged In The Past Week, Are Casino Stocks A Good Buy Now?

Research firm Bernstein reported that their channel checks indicate a relatively strong Golden Week in Macau so far. The research firm estimates casino revenue from October 1 through October 5 was 49%-to-58% higher than the same time last month and that activity at both mass business and VIP tables was better than expected. Given that any uptick in Macau demand is good news for casino stocks Wynn Resorts, Limited (NASDAQ:WYNN), Las Vegas Sands Corp. (NYSE:LVS), and MGM Resorts International (NYSE:MGM), which have rallied this week on the news, let’s take a closer look at Bernstein’s research and see if the smart money agrees with the research firm, and whether these stocks should be bought, sold, or held.

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Macau gaming revenues have been atrocious for some time following the Chinese central government’s crack down on corruption and as the Chinese economy has weakened. Macau’s September gaming revenues declined by 33% year-over-year, while August revenues declined by 35.5% year-over-year.

There have been some green shoots lately, however, as the central government hinted that it would support Macau’s economy in ‘all aspects’. Since China’s central government basically controls casino demand through visa regulations, investors took the central government’s words as a sign of increased future demand and bought or covered as many casino stocks as they could. Shares of Las Vegas Sands rallied to $47 from $37, while shares of MGM rallied to $21 from $18. Shares of Wynn have performed even better, shooting to $75.91 a share versus $51.71 a share a week ago. The Bernstein data is another green shoot and a confirmation that demand is indeed improving.

The casino stocks still have a long ways to go, however, as Bernstein estimates Macau’s Golden Week revenue is still 30% lower than 2014’s Golden Week revenue. The casinos still need to transform themselves into a more family-oriented destination like Las Vegas as well. In the next page, we examine what the smart money thinks of the three stocks and see whether elite investors think the rally can continue.

According to our data, the smart money is bullish on Wynn Resorts, Limited (NASDAQ:WYNN), which trades at a forward P/E of 17.42 and pays a dividend yield of 2.63%. Of the 730 elite funds we track, 35 funds owned $1.24 billion of Wynn Resorts, representing 12.40% of the float, at the end of the second quarter, up from 25 funds holding stakes worth $936.81 million a quarter earlier. Mason Hawkins‘ Southeastern Asset Management owned 7.11 million shares at the end of the second quarter, up by 56% from the prior quarter.

Hedge funds are less optimistic about Las Vegas Sands Corp. (NYSE:LVS), as nine funds held stakes in the company with an aggregate value of $265.44 million, equal to just 0.60% of the company at the end of June. This is down from 24 funds with holdings valued at $390.17 million on March 31. Matthew Hulsizer‘s PEAK6 Capital Management upped its ‘Put’ position by 178% to hold options underlying 1.51 million shares, while also increasing its ‘Call’ position by 157% to cover 1.29 million underlying shares in the second quarter. Las Vegas Sands pays a 5.5% dividend yield and trades at a forward P/E of 18.

The smart money kept its position in MGM Resorts International (NYSE:MGM) stable in the second quarter. The number of funds long the stock was stable at 58 from the prior quarter , while the total value of the funds’ holdings in MGM declined slightly to $1.74 billion worth of the company’s shares (representing 16.90% of the float) from $1.76 billion at the end of the first quarter. Daniel Och‘s OZ Management raised its holding by 51% to 11.22 million shares. MGM trades at a forward P/E of 36.6.

We think Las Vegas Sands is the strongest of the three companies and is a buy, while we would stay on the sidelines for Wynn Resorts and MGM. The smart money thinks the rally in Wynn Resorts can continue, although if Wynn surges due to industry news, the three casino stocks will likely soar together.

Disclosure: None