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Two resort and gambling stocks are less attractive now that the market has better priced in a popular gambling destination’s recovery, according to Jefferies. Analyst David Katz downgraded Las Vegas Sands and Wynn Resorts to hold from buy. Katz shaved Las Vegas Sands’ price target by $4 to $65, still representing an 11.1% upside from where the stock closed Wednesday. He also pulled back Wynn’s target share price by $21 to $114, now implying a 10.4% upside. Both mark a reversal from upgrades in September. Katz said while it’s early in the recovery story in Macao, recent checks show activity levels have moderated while a tight labor market has eased. “We believe the bull case arguments for growth in both cases remain,” he said in a note to clients Thursday. But “while the recovery in Macau remains early stage, we believe these dynamics are relatively well understood by the market and approximately priced in at present levels.” It’s unclear how important gross gambling revenue and mix matter in a post-junket market, he said, though revenue levels were lower than in 2019 with higher margins. He said gross gambling revenue is at 60% of 2019 levels through May 2023, as 2019 saw 46% of its total market come from the VIP-focused junket business. For 2024, he said to expect EBITDA margin growth of 29% for Las Vegas Sands and 52% for Wynn. Katz added estimates have basically caught up to shares, making valuation more important to watch. Despite downgrading the stock, Katz noted investors should continue owning without adding. He said the upside is just less compelling now than it was in September with Macao’s recovery more priced in, though both companies should continue to be helped by the development and are set up for strong capital returns. Outside of Macao, Katz said Las Vegas business should continue to help Wynn, while Singapore is a strong performing area for Las Vegas Sands. Wynn shares were down 2.6% in premarket trading Thursday. — CNBC’s Michael Bloom contributed to this report.
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