Gaming ETF (BJK) In Focus As Macau Mars Wynn's Q4 Earnings

Casino giant, Wynn Resorts Ltd. (WYNN) came up with Q4 financial results after the closing bell on February 3 and dampened investors' confidence with a massive miss on earnings. Adjusted earnings came in at $1.20 per share against the Zacks Consensus Estimate of $1.44. If this was not enough, the casino operator also stumbled on the top line. Its revenues of $1.14 billion fell short of the Zacks Consensus Estimate of $1.24 billion.

Investors should also note that the company’s revenues fell about 25% year over year while its adjusted earnings per share almost halved from the year-ago level. As much as a 32% plunge in Macau revenues along with a 5.8% decline in Las Vegas operations played foul. Shares of WYNN were down 4.36% after hours. (For more details see our analyst's article on Wynn earnings.)

Further, the outlook provided by Wynn appeared grim as evident by the delayed opening of the new Wynn Palace on the Cotai strip of Macau. Casino operators remained in the lurch for quite some time thanks to sluggish Macau business, and Wynn Resorts was no exception. Notably, Macau – a Chinese territory – is one of the largest casino gaming destinations in the world.

After a prolonged bullish run, Macau has fallen out of gamblers’ favor on credit crunch issues in mainland China, a check on illegal money transfers especially in VIP gaming from mainland China to Macau, likely ban on smoking in the VIP gaming floors, constraints on visas and a broad-based slowdown in China. Gambling revenues in Macau for the month of January 2015 declined in double digits – the fourth successive monthly double-digit decline (read: Will Troubles in Macau Spoil Gaming ETF Investments?).

Such an absolute bearishness from Wynn Resorts is prevalent in the entire casino space as another company, Las Vegas Sands Corp. (LVS) was down 1.2% after hours though the company came up with relatively better Q4 earnings on January 28.

Investors should note that Las Vegas Sands’ Q4 earnings of $0.92 beat the Zacks Consensus Estimate by 13.5% and improved from the year-ago earnings by 27.8%. However, its quarterly net revenue of $3.42 billion missed the Zacks Consensus Estimate of $3.55 billion by 3.8% and declined 6% year over year due to weak performance in Macau.

ETF Impact
 
Investors should note that Wynn’s Zacks industry rank falls in the bottom 18%, at the time of writing. The stock presently has an unfavorable Zacks Rank of #5 (Strong Sell) while Las Vegas Sands has a Zacks Rank of 4 (Sell) (read: Avoid Gaming ETF on Subdued Casino Earnings?).

The impact should be felt in the casino gaming ETF Market Vectors Gaming ETF (BJK) also, as the duo has found a place in the top 10 holdings of the fund with a considerable share. For investors seeking to keep a watch on this ETF in the coming days, we have taken a closer look at some of the details of this fund:
 
BJK in Focus
 
The fund looks to track the Market Vectors Global Gaming Index and provides investors a direct exposure to the casino gaming market.  The fund has so far attracted $32.3 million in assets and invested it in 46 holdings. The product is expensive as it charges 65 bps in fees per year which is on the higher end of the expense ratios prevailing in consumer discretionary ETF space (read: Should Investors Avoid These ETFs in 2015?).

Wynn Resorts takes the third spot in the fund with about 6.7% weight while Wynn Macau Ltd takes 3.37% weight in the fund. Both companies – Sands China and Las Vegas Sands – have about 15% exposure in BJK. The fund has lost 18.5% this year.

Bottom Line

The casino gaming industry is presently going through a rough patch with both Macau and the Las Vegas Strip languishing. Notably, after remaining flat year over year for the month of November, Nevada gambling revenues declined approximately 8% for the month of December. Revenues from the Las Vegas Strip which accounts for more than half of Nevada’s total revenue fell 16.4%, marking the fifth successive monthly decline.

While we believe much of this long-drawn-out tension is priced in at the current level and might open up buying opportunities for the ETF, further deterioration in Macau and Las Vegas might lead to more selling pressure in the months ahead. So, investors need to keep a vigilant eye on the space before taking any investment decision.