With a new year comes new prognostications by Wall Street on which gaming companies will provide investors the best return in 2014.
Not surprisingly, Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts International lead the pack. The three companies operate in Macau, which produced a record $45.2 billion in gaming revenue in 2013. All three are adding more multibillion-dollar resorts to the Cotai Strip.
Susquehanna International Group gaming analyst Rachael Rothman said 2014 is expected to to produce another year of double-digit gaming revenue growth in Macau.
“We view Las Vegas Sands and Wynn to be best positioned among global gaming operators to capture development opportunities wherever they arise, and to continue to return capital to shareholders given solid balance sheets and strong management teams,” Rothman said.
Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski said MGM Resorts will become attractive to the investment community as additional value is given to its $2.6 billion project on Cotai, which is expected to open in 2016.
MGM Resorts operates just one casino in Macau. Las Vegas, where MGM has 10 resorts including Bellagio, MGM Grand, Mandalay Bay and CityCenter, is the company’s ace in the hole.
“In the interim, we expect our favorable first half of 2014 Strip outlook to disproportionately benefit MGM given its outsized presence along the Strip,” Wieczynski said.
One gaming company is flying under the radar and stands out, according to Janney Montgomery Scott gaming analyst Brian McGill.
Slot machine maker Multimedia Games, which grew its net income 19 percent, or $1.14 per share, in fiscal 2013, could see even larger returns in 2014.
The manufacturer, which is based in Austin, Texas, but has sales and marketing offices in Las Vegas, rolled out its slot machines in Las Vegas last year.
McGill, who visited the Strip recently and saw customers playing Multimedia products on casino floors, said the company should catch the eyes of investors this year.
“The success in Las Vegas, combined with several other new markets, will lead to strong growth in fiscal 2014 and into fiscal 2015,” McGill said. “We believe the company is seeing strong play levels with its core video product, its award-winning TournEvent game, and its daily fee High Rise games.”
Most analysts pick Bally Technologies as the leading company investors should look at within the gaming manufacturing sector. Bally completed its $1.3 billion buyout of gaming equipment rival SHFL entertainment in November, which formed one of the most diverse manufacturers in the casino business.
The merger combined the gaming industry’s second-largest slot machine provider in Bally, with SHFL, the largest provider of unique table games, and table game management systems and equipment. SHFL also has a large slot machine division in Australia, a market that Bally hopes to expand.
Bally grew profits 41 percent in fiscal 2013 and realized revenue of just under $1 billion, a figure expected to be topped in fiscal 2014 with the addition of SHFL.
Wieczynski was bullish on Bally heading into 2014.
“While some may question our selection of Bally’s given the shares’ strong performance in 2013 and our tepid outlook for the group, we would argue the current share price continues to discount the inherent value of the well-protected, geographically diversified and highly recurring SHFL business,” Wieczynski said.
McGill has given Bally positive ratings in the past and remains supportive of its investment prospects.
Multimedia Games, however, may provide an even better opportunity for investors. The Nevada roll-out will remain the company’s primary revenue driver throughout the year. Nevada casinos are continuing to add the company’s slot machines. Sales are also expected to grow in other markets, including Atlantic City, Illinois and Pennsylvania.
The timing of casino openings in California and Alabama could also provide additional sales opportunities.
“The new markets, combined with a favorable calendar of new property openings for Multimedia Games, will potentially lead to higher than expected earnings per share in fiscal 2014,” McGill said.
“We expect the company to benefit from sales into markets such as the continuation of Nevada, but also Oregon, Canada and other underpenetrated markets. We estimate that the company has markets with over 500,000 games where it has less than 0.5 percent share.”