Casino Stocks: Dealt a Losing Hand in Today’s Rally

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Equities rallied across the board today, as European Central Bank President Mario Draghi pledged that the ECB “is ready to do whatever it takes to preserve the euro, and believe me, it will be enough.” The Dow Jones Industrial Average jumped more than 200 points, while the S&P 500 and Nasdaq both gained more than 1 percent. However, not every industry enjoyed the euro boost.

Even in a market driven by headlines and rumors, fundamentals can rear their ugly head during earnings season. Casino stocks skipped Thursday’s rally as Las Vegas Sands (NYSE:LVS) reported a dismal second quarter. The company, which develops integrated resorts worldwide and owns The Venetian and The Palazzo, said net income fell 41.4 percent to $240.6 million (29 cents per share). The quarter’s profit decrease breaks a streak of four consecutive quarters of year-over-year profit increases. Revenue increased 10 percent to $2.58 billion, but missed the average revenue estimate of $2.78 billion. Shares of the company fell 6 percent after the earnings release, while other casino names such as Boyd Gaming (NYSE:BYD) and Wynn Resorts (NASDAQ:WYNN) fell more than 1 percent.

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Mr. Sheldon G. Adelson, chairman and chief executive officer, stated, “While our quarterly results did not meet my expectations, and were impacted by lower hold on table games play compared to last year’s second quarter, higher provisions for accounts receivable at Marina Bay Sands in Singapore, and elevated legal expenses, our financial results reflected solid revenue growth overall and significant cash flow in both Macao and Singapore, as well as the continued steady execution of our Cotai Strip development plan in Macao.”

As the chart above shows, casino names have been a losing bet. Las Vegas Sands and Wynn Resorts have declined about 17 percent year-to-date, while MGM Resorts (NYSE:MGM) and Boyd Gaming have dropped 13 percent and 30 percent, respectively. Although Caesars Entertainment (NASDAQ:CZR) has only been trading publicly since February, its share price has been nearly cut in half.

On Tuesday, Boyd Gaming reported weaker-than-expected financial results for the second quarter. Earnings came in at one cent per share on revenue of $615.2 million. It fell short of the mean analyst estimate of 10 cents per share on revenue of $625.1 million. “During the second half of the quarter, business trends began to weaken, and that clearly contributed to softness in our results,” said Keith Smith, president and chief executive officer. Last week, Wynn also reported an earnings and revenue miss.

Much like consumers, casino names have been tightening their wallets. On the conference call, Steve Wynn explained, “We are very conservative about credit, I said that on these kinds of phone calls before. And we were so conservative that when the economies of Europe and the United States and China were being questioned, we were very tight in our reserves. It turns out that in the past 6 months and before, we’ve been too tight.”

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