Macau casino stocks could be impacted by new COVID deaths in Shanghai

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Macau casino stocks are on watch again this week with investors looking to see how far the zero-tolerance policy in China can extend.

The government in Shanghai has reportedly set a new target of zero cases at the community level by April 20, which means no new cases outside of quarantined zones. That may be a tough standard after 23,643 new local infections Shanghai were reported for April 16, of which 722 were from outside the quarantined areas. The city also reported 19,831 new daily asymptomatic COVID-19 cases on April 17, as well as three deaths to mark the first fatalities during the current COVID outbreak in the region. Separately, local authorities in Zhengzhou placed some areas in the Zhengzhou Airport Economy Zone under quarantine.

Jefferies analyst David Katz noted that the Macau near-term remains bleak due to the Shanghai Lockdown.

Katz' breakdown on Las Vegas Sands (LVS) and Wynn Resorts (WYNN): "The key issue of discussion with investors is whether the current valuation levels of LVS and WYNN at 10X-11X 2023E EBITDA present a valuation bottom. Regarding LVS, the absence of US presence coupled with the Singapore asset that could be worth an estimated $30/sh., although the continued financial pressure on Macau is a negative offset. In WYNN's case, the Las Vegas and Boston assets should benefit from the US recovery, while establishing a long-term value for Macau remains more challenging. In either case, we view the risk profiles for both names as elevated."

Macau casino stocks: Wynn Macau (OTCPK:WYNMF, OTCPK:WYNMY), Wynn Resorts (WYNN), Sands China (OTCPK:SCHYY, OTCPK:SCHYF), Las Vegas Sands (LVS), MGM China (OTCPK:MCHVF, OTCPK:MCHVY). MGM Resorts (MGM), Galaxy Entertainment (OTCPK:GXYEF), SJM Holdings (OTCPK:SJMHF, OTCPK:SJMHY), Melco Resorts & Entertainment (MLCO), and Studio City International (MSC).

Outside of China, the casino sector is setting up for a strong 2022 after Delta Air Lines' earnings tipped off a potential boom in summer travel.