PEJ Invesco Leisure and Entertainment ETF

Casino operators seem to be on fire this year thanks to a massive upswing in the Macau business and a slow-but-steady improvement in Las Vegas.  The three big casino and hotel companies, MGM Resorts International (MGM), Las Vegas Sands Corp. (LVS) and Wynn Resorts (WYNN), surprised investors this quarter. In fact, the trio breezed past the Zacks Consensus Estimate on both lines in Q1, and sounded bullish on their future course too.

Among the three, the latest to report was Wynn Resorts. The firm reported on April 30, after the closing bell, its adjusted earnings of $2.32 per share (up 14.3% year over year) beat the Zacks Consensus Estimate by 9.9% and the revenues of $1.51 billion (up 9.8% year over year) surpassed the same by about 2.3%.

As much as 14.2% revenue gain in Macau bolstered the operator’s results this quarter, though 1.5% fall in Las Vegas revenues restrained some of the optimism. Notably, both VIP segment and Mass Market segment saw spectacular gains of, respectively, 26.7% and 23.7% in Macau. Following the release, shares added 2.49% after hours. Wynn Resorts also presently has a Zacks Rank #2 or Buy rating.

A day before, on April 29, MGM Resorts broadly beat the adjusted earnings estimate by a whopping 110%. MGM’s adjusted earnings of $0.21 per share were also well ahead of the year-ago figure of a penny. Here also, MGM China performed impressively registering a revenue expansion of 26% aided by considerable increases in main floor table games and VIP revenues.

However, the company saw a 2% decline in Casino revenues from the wholly owned domestic resorts, though MGM’s urban complex CityCenter witnessed a 6.8% in upswing in revenues. Total revenue grew 11.8% year over year to $2.63 billon, which came ahead of the Zacks Consensus Estimate of $2.57 billion by 2.3%.

Investors should note that MGM tuned into a profit making company from a loss-making one in the first quarter of last year only and presently has a Zacks Rank #2. Just after the release of the earnings, MGM share price increased more than 8% (read: Time to Bet on Consumer Discretionary ETFs?).

Prior to this, Las Vegas Sands which reported on April 24, saw an earnings beat of 4.3% and revenue beat of about 4.4%. Its adjusted earnings of $0.97 grew 36.6% year over year and revenues surged 21.4% on solid gaming volume in Macau.

Market Impact

While all three amazed investors this quarter, the notable response was from MGM Resorts. In fact, its results acted as a catalyst for the entire space. Often, a rising tide lifts all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the space.

Among the trio, two are Buy-rated while Las Vegas Sands has a Zacks Rank of #3 or Hold rating. While investing in a single stock is always an option, investors can take advantage of the growing characteristics of all three as well as overall ‘Macau boom’ via a basket approach.

Below we have highlighted two ETFs Market Vectors Gaming ETF (BJK) and PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ) that have considerable exposure in these leisure companies in detail (read: Is This ETF a Better Bet in the Consumer Space?).

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 product has so far been overlooked by investors as is evident from its paltry volume of about 30,000 shares daily.

The fund has so far attracted $80 million in assets and invested that in 45 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 ETFs.

All three abovementioned companies have created places in the top-10 holdings of the fund with a considerable share. Both the companies – Sands China and Las Vegas Sands – have about 15% exposure in BJK.

MGM China holdings (about 5.23%) and MGM Resorts International (4.23%) call for more than 9% of the fund. Wynn Macau (3.7%) and Wynn Resorts Ltd (5.62%) also accounted for more than 8% of BJK (read: Gaming ETF (BJK) in Focus as Casinos Hit Jackpot).
 
Though the fund slipped 6.46% this year, it should forge ahead in the coming months. It is currently has a Zacks ETF Rank #3 (hold) with a high risk outlook.

PEJ in Focus

Though is fund has very small tilt toward casino and gaming market with about 12% exposure, Las Vegas Sands (5.02%) and Wynn Resorts Ltd (4.55%) had places in the top 10 holdings of the ETF. Notably the fund is devoid of MGM exposure – arguably the most promising arm of the space, as of now.

PEJ looks to track the dynamic Leisure and Entertainment Intellidex Index.  This is a smart beta ETF focusing on criteria like price momentum, earnings momentum, quality, management action, and value before including any stock in its portfolio (read: 'Dynamic' ETFs to Energize Your Portfolio). 

The fund invests about $176.7 million in assets in 30 holdings. The fund charges slightly higher fees of 63 basis points per year but has the potential to supersede its peers. PEJ lost 5.25% in the year-to-date frame. PEJ currently carries a Zacks ETF Rank of 1 or Strong Buy rating with a medium risk outlook.

Bottom Line

In a nutshell, positive Macau vibes are in the air now. Even a much-talked about slowdown in China could not muffle the gaming spree in one of the world’s largest gambling destinations. This mushrooming market is slated to see a flurry of openings by the likes of Wynn Resorts and MGM Resorts by 2016 as well.

Thus, those who are still not invested into Macau Mania can try out their luck in the afore-mentioned ETFs, as either one could definitely benefit from a continued surge in gambling in this vital casino market.

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MKT-VEC-GAMING (BJK): ETF Research Reports
 
LAS VEGAS SANDS (LVS): Free Stock Analysis Report
 
MGM RESORTS INT (MGM): Free Stock Analysis Report
 
PWRSH-DYN LE&EN (PEJ): ETF Research Reports
 
WYNN RESRTS LTD (WYNN): Free Stock Analysis Report
 
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