Casino Stocks Find Buyers After Nevada Order

The State of Nevada has ordered resort and casino operators to reduce capacity from 50% to 25% in an effort to stop the spread of COVID-19. Casinos, restaurants, and bars throughout the state are affected by the order, but hotel occupancy is exempt, raising doubts about its effectiveness. The state's seven-day average of new cases now exceeds 2,000, more than doubling since early November, while 10% of all 2020 cases have been recorded in the past 10 days.

Key Takeaways

  • Nevada has reduced indoor capacity at casinos, restaurants, and bars from 50% to 25%.
  • Wynn Resorts, Limited (WYNN) and Las Vegas Sands Corp. (LVS) barely budged after news, showing resilience.
  • Both stocks are fully priced and unlikely to post significant gains until the pandemic runs its course.

Wynn Resorts and Las Vegas Sands took the news in stride, with share prices running in place near eight-month highs. So far at least, Americans are staying mobile, with more than a million travelers passing through the nation's airports on Sunday, despite CDC warnings about the Thanksgiving holiday. Unfortunately, that will change in a hurry if the virus overwhelms hospitals and sick patients start dying in the hallways.

Resort operators said that they'll comply with the order but warned that it's going to affect recently reopened entertainment attractions that need full houses to turn profits. Gaming revenues through September were down 45% on the Las Vegas Strip, while total Nevada market visitation plunged 55%. Things have picked up since that time, with hotel occupancies running in the mid-30% range on weekdays and between 50% and 80% on weekends.

Wall Street consensus on major Las Vegas and Macao players has improved in recent months, with most analysts looking past the fourth quarter and toward international vaccine distribution. Shares of Wynn Resorts and Las Vegas Sands are currently rated as "Moderate Buys" and trading close to median price targets. The targets look appropriate and in line with the current technical outlook, which has brightened considerably in the past two months.

Occupancy rate is the ratio of rented or used space to the total amount of available space. Analysts use occupancy rates when discussing senior housing, hospitals, bed-and-breakfasts, hotels, and rental units, among other categories. In a call center, occupancy rate refers to the amount of time agents spend on calls compared to their total working hours.

Wynn Resorts stock topped out near $250 in 2014 and entered a decline that found support near $50 in 2015. Lower highs in 2018 and January 2020 confirm a long-term downtrend that will take more than a COVID-19 vaccine to overcome. Price action undercut the 2015 low in March and fell to the lowest low since 2009, ahead of a strong bounce that reestablished support before reversing near 200-day exponential moving average (EMA) resistance in June.

The stock remounted the moving average earlier this month but is still trading below the June peak at $109. The 200-month EMA has narrowly aligned at the same level, making further progress unlikely until the pandemic runs its course. Even so, bottom fishing has picked up considerably since September, lifting the on-balance volume (OBV) accumulation-distribution indicator to a five-month high.

Las Vegas Sands stock also topped out in 2014 and rolled over, finding support at the 2012 low in the first quarter of 2016. It posted lower highs in 2018 and January 2020, ahead of a pandemic decline that undercut the 2016 low at $34.88 before bouncing at the lowest low since 2010. The subsequent recovery wave stalled at the 200-day EMA in June, giving way to slightly higher lows in August and September. 

The stock broke out above the moving average at the start of November and also mounted the June peak at $56.02. The uptick has faded in the past two weeks, with price now glued to prior high, which also marks 50-month and 200-week EMA resistance. OBV shows even stronger bottom fishing interest than its rival, lifting within a few ticks of the June high, which also marks a two-year high.

Bottom fishing refers to investing in assets that have experienced a decline due to intrinsic or extrinsic factors, and are considered undervalued. A bottom fisher, a moniker given to investors who practice the bottom fishing strategy, speculates, using either technical or fundamental analytical techniques, that an asset's depressed price is temporary and will recover to become a profitable investment over time.

The Bottom Line

Las Vegas and Macao casino operators are showing resilience after the State of Nevada reduced indoor capacity due to the surging infection.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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