Time To Buy Casino ETF On Value?

About: VanEck Vectors Gaming ETF (BJK), Includes: LVS, MGM, WYNN
by: Zacks Funds

The dark clouds of slowdown that were long settled over Macau are finally clearing. Casino operators, who have been suffering from a sluggish business scene in Macau, are again seeing glimmers of hope.

Notably, Macau - a Chinese territory - is one of the largest casino gaming destinations in the world. Credit crunch in Mainland China, check on illegal money transfers especially in VIP gaming, constraints on visa and last but not the least, a broad-based slowdown in China wrecked havoc on the casino business in Macau.

However, these burning issues have started to cool off. Gaming revenues declined 21.4% year over year in January, but the fall was lesser than what analysts had projected. Year-over-year declines in Macau gaming revenues may decrease further in February to 5%, as per Credit Suisse Group AG. In the last one month, the casino gaming ETF Market Vectors Gaming ETF (NYSEARCA:BJK) was up 3.3% (as of February 12, 2016).

All in all, there was a boost in sentiments in gambling companies. This makes it more important to look at casino earnings this season. Below, we highlight two key casino earnings releases:

Q4 at Wynn Resorts

On February 11, Wynn Resorts Ltd. (NASDAQ:WYNN) posted mixed fourth-quarter 2015 results. Adjusted earnings of $1.03 per share decreased 14.2% but beat the Zacks Consensus Estimate of $0.74 by 39.2%. Revenues of $946.9 million missed the consensus mark of $1960 million by 1.4% and slipped 17% year over year, owing to a choppy performance in Macau.

Despite the mixed performance, investors were keen on building positions in the stock as founder Steve Wynn pointed out that this January as 'the best month in a long time'. Investors took this statement as a sign of turnaround in Macau operations, which have long been a pain for Wynn. The company surged more than 15.8% on February 12, 2016 following the earnings report.

Notably, Wynn Macau revenues plummeted 27% year over year to $555.7 million in the quarter, owing to lower revenues at the VIP and the mass market segments, while Wynn Resorts' revenues from Las Vegas operations increased 3.8% year over year to $391.2 million supported by higher non-casino revenues.

WYNN has a Zacks Rank #3 with a value style score of 'B'. The underlying industry of the company is in top 25% segment of the Zacks Universe.

Q4 at Las Vegas Sands

Las Vegas Sands' (NYSE:LVS) fourth-quarter 2015 earnings of $0.62 - announced on Jan. 27 - missed the Zacks Consensus Estimate of $0.64 by 3.1%. Earnings fell approximately 32.6% year over year. The downside reflects a decline in revenues, partially offset by lower expenses.

Quarterly net revenue of $2.86 billion missed the Zacks Consensus Estimate of $2.92 billion by 2.1% and declined 16.2% year over year due to soft business in Macau. Since reporting earnings, the stock gained about 6% (as of February 12, 2016).

LVS has a Zacks Rank #3 with a value style score of 'B'.

Casino ETF: Time to Buy?

The performance at Wynn Resorts has acted as a cornerstone for the entire space as LVS also added over 9% and MGM Resorts International (NYSE:MGM) advanced about 7% at the close on February 12, 2016.

WYNN's outsized gains gave a big push to the casino gaming ETF which was up 3.4% on February 12, but is down 0.7% since Las Vegas Sands reported its earnings.

Moreover, investors should note that casino stocks have been extremely cheap in valuation after undergoing a steep sell-off. Plus, analysts are betting on a turnaround in Macau. Per analysts, the region is changing itself from being mass-centric to being VIP-oriented. Another group of analysts believes that "if the yuan and Chinese economy stabilize there's money making opportunity in Macau."

In any case, all three companies mentioned above have found a place in the fund with a considerable share. Las Vegas Sands and Sands China - together have about 16% exposure in BJK. Wynn Resorts takes about 3.21% in the fund while MGM has about 6.2% share. The fund holds about 43 stocks in total. The product charges 66 bps in fees and has a Zacks ETF Rank #3.

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