Seaport downgrades MGM, lifts Macau casino forecasts as Las Vegas outlook weakens

Seaport Research downgraded MGM Resorts and MGM China to Neutral, citing a slowdown in Las Vegas and limited upside following a strong Macau rally, alongside MGM's rising capital expenditure. Conversely, the firm raised its full-year Macau gross gaming revenue forecast to 7% growth, driven by stronger-than-expected Q2 momentum and improved China sentiment, noting Macau-focused stocks remain below pre-pandemic valuations. Seaport's top picks include Melco Resorts, Las Vegas Sands, Sands China, and Wynn Macau, with a long-term positive outlook on Wynn Resorts due to its UAE expansion potential.

Analysis

Seaport Research has initiated a notable ratings shift in the gaming sector, downgrading MGM Resorts (MGM) and MGM China (MCHVY) to Neutral. The downgrade is predicated on a dual thesis: a discernible slowdown in the Las Vegas market and the view that Macau-focused equities have limited near-term upside after a significant rally. Despite the downgrade, Seaport has concurrently upgraded its forecast for Macau's gross gaming revenue (GGR), now projecting 7% growth for the full year and an accelerated growth rate of over 9% for the second half. This optimism is fueled by stronger-than-expected Q2 momentum and improving sentiment towards China, although Macau stock valuations remain below pre-pandemic levels. The analysis creates a clear divergence, flagging MGM specifically for pressures from slowing U.S. demand and substantial capital expenditures related to its New York and Japan projects. In contrast, Seaport identifies Melco Resorts, Las Vegas Sands (LVS), Sands China (SCHYY), and Wynn Macau (WYNMF) as its top picks, signaling a preference for operators with primary exposure to the Macau recovery. Furthermore, Wynn Resorts (WYNN) is highlighted for its positive long-term potential, driven by its strategic expansion into the UAE.

Key Decisions for Investors

• Investors should consider rotating capital from MGM, which faces headwinds from a Las Vegas slowdown and high capex, towards Macau-centric operators like Las Vegas Sands and Wynn Resorts, which are Seaport's preferred picks.
• Monitor Macau's monthly Gross Gaming Revenue (GGR) reports closely to validate the thesis of sustained 9%+ growth in the second half, as the sustainability of this recovery is now the key focus.
• For those with a long-term horizon, Wynn Resorts warrants evaluation based on the strategic growth catalyst of its UAE expansion, which provides a distinct investment narrative beyond the current Macau cycle.
• Re-evaluate holdings in MGM given the specific concerns about rising capital spend for its New York and Japan projects, which could weigh on near-term financial performance.