BofA Upgrades Caesars Entertainment, Downgrades Wynn On Macau Concerns

Shares of Wynn Resorts, Limited WYNN traded lower by nearly 5% on Monday morning after the stock was downgraded on concerns about the lagging casino recovery in Macau.

The Analyst: Bank of America analyst Shaun Kelley downgraded Wynn from Buy to Neutral and cut his price target from $130 to $105. In the same note, Kelley upgraded Caesars Entertainment Inc CZR from Neutral to Buy and reiterated his $125 price target.

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The Thesis: Kelley said there is simply too much uncertainty tied to Wynn’s Macau casinos to stay bullish on the stock at this point.

“Despite China’s swift COVID recovery, Macau has been derailed by visa restrictions, virus flare-ups and new policies that have impaired cross-border travel,” Kelley said.

In addition to an unclear COVID recovery path, Kelley said Wynn may continue to face headwinds related to geopolitical risks and negative U.S. investor sentiment toward China-exposed stocks.

However, while China lags, Kelley said Las Vegas is recovering nicely. Caesars now has structurally higher margins, and he said the company has plenty of room to gain market share in the high-growth digital gaming space. Caesars is planning to invest $1.5 billion in its online gaming and omnichannel gaming initiatives in the next 2.5 years, and Kelley said the company has excellent gaming and sports partnerships that may give it a leg up on the competition.

For now, he sees strong sports betting/iGaming trends during the upcoming NFL season and additional improvements in the Las Vegas market as potential bullish catalysts for Caesars.

Benzinga’s Take: For now, any casino stocks with exposure to Macau are high-risk, high-reward plays given China's crackdowns on U.S.-listed stocks and the ongoing pandemic-related travel restrictions in China. Conversely, American companies that have exposure to the booming online sports betting and iGaming markets have plenty of positive momentum.