After initially dismissing the potential impact of the Wuhan coronavirus on Macau gaming stocks, one Wall Street analyst downgraded Wynn Resorts, Limited (NASDAQ: WYNN) on Monday due to concerns over the virus’ potential impact on Macau travel.
Bank of America analyst Shaun Kelley downgraded Wynn from Buy to Neutral and cut his price target from $160 to $150.
Kelley said Wynn’s exposure to international travel and the poor timing of the Wuhan outbreak just prior to the Chinese New Year holiday is enough for investors to take a cautious approach to Wynn for now.
Kelley said that, while the Wuhan virus appears to be less deadly than SARS, it now seems to be more contagious than experts initially believed.
“What is known about the disease, its curability and how it spreads is still limited but as we learn more, the virus appears to be more difficult to combat than expected, esp. as it may be contagious during its incubation period (unlike SARS),” Kelley wrote in a note.
The good news for Macau investors is that, while SARS originated in Southeast China, Wuhan is located about 600 miles from Macau. Out of more than 2,500 confirmed cases of the virus, only 8 cases have occurred in Hong Kong and just five so far in Macau.
Kelley said the Wuhan virus sell-off may ultimately be a buying opportunity for Macau gaming investors, near-term headline risk is significant and Wynn and competitor Las Vegas Sands Corp. (NYSE: LVS) have limited valuation support.
The good news for long-term investors is that the mortality rate of the Wuhan virus is under 3% up to this point compared to a more than 9% mortality rate for SARS. Thee SARS outbreak ultimately lasted about four months, and the S&P 500 gained 18.6% in the six months that followed.
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