The world of casino stocks is often very volatile. Sometimes a good economy isn’t enough. Then there are the regional concerns for casinos, such as Macau having new risks and concerns. Sterne Agee’s leisure and entertainment analyst, David Bain, has lowered his estimates and target prices for the Macau gaming stocks. The analyst’s calls were based on near-term headwinds that are coming ahead of transformative supply and infrastructure growth.

Despite lowering estimates and target prices, 24/7 Wall St. noticed that Sterne Agee is still more bullish than the consensus price targets in three of the four U.S. casino players that have Macau exposure. Another note is that David Bain still formally has Buy ratings on all four of these stocks.

Perhaps the larger question here is whether these Macau casino stocks have pulled back enough from their highs that they could represent value. That, of course, is dependent on many factors, some of which are not traditional risks that investors would worry about.

Melco Crown Entertainment Limited (NASDAQ: MPEL) is considered the Macau pure-play of the four stocks covered. Sterne Agee lowered Melco’s price target lowered to $54 from $57 (versus $44.33 consensus). The stock trades at 12.5 times the 2016 earnings per share estimate. Those forward earnings targets were lowered each year as follows:

• 2014 went to $1.56 from $1.64
• 2015 went to $1.80 from 1.90
• 2016 went to $2.39 from $2.59

Wynn Resorts Ltd. (NASDAQ: WYNN) saw its price target moved down to $245 from $260 at Sterne Agee (versus $244.68 consensus), and it trades at 15.1 times the 2016 earnings per share estimate. In about six quarters, Wynn Palace will open in Macau, setting the stage for a more than doubling of Wynn’s Island EBITDA. Wynn’s earnings per share were changed by year as follows:

• 2014 went to $8.27 from 8.87
• 2015 went to $9.26 from $10.06
• 2016 went to $13.39 from $13.87

Las Vegas Sands Corp. (NYSE: LVS) saw its price target decreased to $84 from $92, with the consensus price target at $86.35. The Sands trades at 15.6 times expected earnings. Sterne Agee continues to believe Las Vegas Sands will organically outgrow peers, driven by its island-high hotel capacity and peer-high weighting to mass market gaming. Still, its earnings per share were changed by year as follows:

• 2014 went to $3.51 from $3.71
• 2015 went to $3.85 from $4.08
• 2016 went to $4.39 from $4.68

MGM Resorts International (NYSE: MGM) saw its price target remain at $33, slightly higher than the $31.02 consensus target. MGM is primarily Las Vegas Strip-driven now, but the Sterne Agee thinks that MGM should begin to double Macau EBITDA in 2016 with the opening of MGM Cotai. The analyst lowered the Macau gross gaming revenue growth to 5% from 9%. This year is being called a transition year ahead of the increased growth for the next few years. It is expected to be about a $77 billion market by the end of 2017. The earnings per share were lowered as follows:

• 2014 went to $0.48 from $0.49
• 2015 went to $0.49 from $0.51
• 2016 went to $0.81 from $0.83

Casino stocks are very sensitive to headline risk, as we saw on Friday when news the Russia and Ukraine tensions and fighting took the wind out of the stock markets. These are the late-Friday share prices, with a 52-week range for comparison:

• MGM Resorts was down only 0.7% at $24.96, with a 52-week range of $17.04 to $28.75.
• Las Vegas Sands was down by 0.8% at $68.02, with a 52-week range of $54.36 to $88.28.
• Wynn was down 0.9% at $200.30, with a 52-week range of $138.01 to $249.31.
• Melco Crown, the pure-play on Macau, was down 2.3% at $29.09, with a 52-week range of $26.30 to $45.70.

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