Should You Buy The Gaming ETFs Following Downbeat Q4 Results?

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Includes: BJK, LVS, MGM, WYNN
by: Zacks Funds

Three leading casino and hotel companies, MGM Resorts International (NYSE:MGM), Las Vegas Sands Corp. (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), recently announced their results for the fourth quarter of 2016. The results have been mixed for the trio.

Las Vegas Sands' fourth-quarter earnings of 62 cents lagged the Zacks Consensus Estimate of 65 cents by 4.6%. Meanwhile, the figure remained flat on a year-over-year basis.

Quarterly net revenues of $3.08 billion came below the Zacks Consensus Estimate of $3.15 billion by over 2%, but increased 7.4% year-over-year due to a comparatively better performance in Macao. Las Vegas Sands' shares have remained relatively flat (down 0.7%) over the last three weeks (as on February 17, 2017).

Wynn Resorts posted earnings of 50 cents per share in the fourth quarter, missing the Zacks Consensus Estimate of 67 cents by 25.4%. Further, earnings decreased 35% year-over-year mainly due to a lower operating income margin.

Net revenue of $1.30 billion surpassed the Zacks Consensus Estimate of $1.25 billion by 4%. Moreover, revenues increased 37.3% on the back of the Wynn Palace opening, partly offset by lower revenues from Wynn Macau and unfavorable performance by the company's Las Vegas operations. Wynn shares also remained more or less flat (down 0.4%) over the last three weeks (as on February 17, 2017).

Shares of MGM Resorts International were down to $26.60 (down 10.1%) at the closing bell on February 17, 2017, after the company posted mixed results for the fourth quarter of 2016 on February 16. While earnings lagged the Zacks Consensus Estimate, revenues surpassed the same.

MGM reported revenues of $2.46 billion. This surpassed the consensus estimate of $2.44 billion. In the fourth quarter of 2016, net revenue at the company's wholly owned domestic resorts increased 17% year-over-year. MGM Resorts posted adjusted earnings of 11 cents per share, which came below the Zacks Consensus Estimate of 17 cents by 35.3%. Reported earnings, however, compared favorably with the year-ago quarter loss of a penny.

The company's board of directors announced the initiation of a quarterly dividend of 11 cents per share, payable on March 15, 2017, to shareholders of record, as of March 10, 2017.

Market Impact

Two of the major players (Las Vegas Sands and Wynn Resorts) in the market have remained relatively flat over the last three weeks (as on February 17, 2017) and MGM dropped approximately 10.1% (as on February 17, 2017) since the earnings were released. The casino gaming ETF VanEck Vectors Gaming ETF (NYSEARCA:BJK) has remained flat over the last three weeks (as on February 17, 2017).

Inside BJK

All three above-mentioned companies feature in the top-10 holdings of the fund with a considerable share. Sands China and Las Vegas Sands - have about 15% exposure in BJK. MGM Resorts International constitutes around 6.5% of the fund. Wynn for around 3.2% of BJK.

What's Next in the Gambling Space?

Undoubtedly, the business has improved in Macau. Gaming revenue has increased for six successive months, per Bloomberg. However, another crackdown by China on illegal money transfer through casinos could harm the industry. We need to wait to ascertain the impact of the Chinese policy as well as earnings on the gambling industry in Macau.

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