Early this morning the Macau Gaming Inspection and Coordination Bureau reported August gross gaming revenue rose 20.4% year over year, with a month over month dip of just over 1%. While this sequential dip may catch some off guard and could rattle the shares of gaming and resort companies operating in the Chinese city somewhat, as we head into the holiday weekend, let’s remember that as of late Houston was not the only city hit by a natural disaster. Earlier this month, Macau was hammered by the severe Typhoon Hato, which shuttered casinos and resorts for several days.
Adjusting our view for that, the year over year growth in Macau gaming revenue remained impressive in August as the city continues to woo tourists and gamblers, particular VIP gamblers. This was one of the key aspects for the addition of MGM Resorts (MGM) in June to the Tematica Select List as part of our Guilty Pleasure investment theme. With MGM slated to open another Macau based resort in 2018 — the MGM Cotai that will include a spa, theatre, and 1,500 hotel rooms — the company continues to expand its presence in this market. As a reminder, Macau is the only part of China where casino gambling is legal, and odds are China’s rising middle class (a key part of our Rise & Fall of the Middle Class investing theme) is embracing our Guilty Pleasure theme as are tourists to the region.
Being the data junkies we are here at Tematica, we’ll look to the next report on Macau gross gaming revenue due in early October to see how quickly the city shrugs off the effects of Hato. Before then, we’ll get the August Nevada Gaming Revenue Report and that should shed some details on the recent Mayweather-McGregor fight had on Las Vegas, even though it wasn’t a sold out event.
Finally, one quick reminder, on September 8 MGM shares go ex-dividend to reflect the next $0.11 per share dividend, which will be paid on September 15. While the current annualized dividend yield of 1.3% is not the largest, we see the recent decision to pay a quarterly dividend as more indicative of the company’s multi-year strategy.
- For now, our price target on MGM Resorts (MGM) shares remains $37.
Over the weekend, Barron’s published an excerpt from Wedbush’s price target hike and upgrade on Starbuck (SBUX) shares last week. We’ve been patient with the shares during the summer given it’s a seasonally weaker time frame for the company. As the summer comes to an end, we are encouraged by Wedbush’s findings that Starbucks same-store sales are trending better than expected. We attribute this in part to the company’s revamping and expanding its food menu, which is likely driven higher consumer tickets.
As we head into the cooler months, we suspect the demand for hot beverages and food will lead to further sequential improvements in domestic same-store sales. We also see the company’s global same-store sales benefitting from the recent decision to buy the remaining 50% share of its East China business from long-term joint venture partners Uni-President Enterprises and President Chain Store for approximately $1.3 billion in cash. With the agreement, Starbucks will assume 100% ownership of approximately 1,300 Starbucks stores in Shanghai and Jiangsu and Zhejiang Provinces. As part of that announcement, Starbuck reiterated plans to have a total of 5,000 stores in mainland China, the company’s fastest-growing market outside of the U.S., by 2021. In our view, this roll-out keeps Starbucks within our Rise & Fall of the Middle Class and Affordable Luxury tailwinds.
- Our price target on Starbucks (SBUX) shares remains $74.
We are upgrading Starbucks (ticker: SBUX) to Outperform from Neutral. We are increasing the price target to $60 from $57.
Checks indicate U.S. comps tracking in line with expectations. Our recent checks of 5% of U.S. co-owned locations point to same-store-sales (SSS) growth in line with fiscal-fourth-quarter consensus of 3.5%. Mobile order and pay continues to be cited as a meaningful driver with increased frequency. We continue to model 3% for the fiscal fourth quarter, but based on our checks we view a rounded-up 4% U.S. comp as realistic should this trend continue through September.
Source: Starbucks to See Boost From China Acquisition – Barron’s
While the “bad news is good news” move in the market over the last few days is decidedly more enjoyable than those gut-wrenching market falls of late, it’s like a party that goes on for too long; at some point someone has to turn off the music, close up the bar and call it a night.
We’ve already seen some warning signs that it might be time to head out before things get awkward in the form of negative earnings pre-announcements for several companies.
In this week’s issue of Tematica Insights:
- With the September ISM Manufacturing Survey out, what does it mean for inflation and any potential Fed action on rates later this year.
- Is this a good time to jump on buying opportunities with all the negative earnings pre-announcements coming out?
- China’s adoption of Western diet demonstrates how thematics can play-out in society.
- Tematica Select List company Skyworks ([stock_quote symbol=”SWKS”]) makes a move, which has adds an interesting wrinkle to our Connected Society thematic.
- Alcoa (AA)
- Amazon.com (AMZN)
- American Airlines (AAL)
- Apple Inc. (AAPL)
- Bank of America (BAC)
- Caterpillar (CAT)
- Chegg Inc. (CHGG)
- ConAgra (CAG)
- Corning Inc. (GLW)
- Dunkin’ Brands (DNKN)
- DuPont (DD)
- FedEx (FDX)
- Hewlett Packard (HPQ)
- Illumina (ILMN)
- Immersion Corp. (IMMR)
- Kimco Realty (KIM)
- Lifelock (LOCK)
- Merk & Co. (MRK)
- Netflix (NFLX)
- Nu Skin (NUS)
- Palo Alto Networks (PANW)
- PayPal (PYPL)
- PMC-Sierra (PMCS)
- Skyworks Solutions (SWKS)
- Starbucks Inc. (SBUX)
- Swift Transportation (SWFT)
- Synaptics Inc. (SYNA)
- Taiwan Semiconductor (TSM)
- The Container Store (TCS)
- U.S. Global Jets ETF (JETS)
- United Natural Foods (UNFI)
- Verizon Communications (VZ)
- Wal-Mart (WMT)
- Walt Disney (DIS)
- Whole Foods Market (WFM) Xylem, Inc (XYL)
- Yum! Brands (YUM)