Morgan Stanley holds off on casinos, citing uncertain recovery outlook

With second-quarter earnings season approaching, Morgan Stanley is advising investors to remain on the sidelines when it comes to Macau gaming stocks, arguing that cheap valuations alone do not justify buying at this stage.

Analysts Praveen Choudhary and Stephen Grambling cautioned that the recent slowdown in gross gaming revenue growth (GGR), combined with negative operating leverage, means estimate revisions remain tilted to the downside. Industry observers, they noted, are continuing to cut forecasts, a trend the bank expects to persist.

“We expect a continued decline in GGR growth expectations,” Choudhary and Grambling wrote, pointing to the bank’s quarterly growth forecasts for the remainder of 2026, which range between two to three percent year-on-year for the second through fourth quarters.

The analysts also observed that high free cash flow and dividend yields among Macau’s concessionaires have yet to gain recognition from investors, suggesting market sentiment remains muted despite what appear to be attractive fundamentals on paper.

Despite the broader caution, Morgan Stanley has singled out MGM China as its preferred name in the sector. The stock was downgraded to “Equal Weight” in December 2025 following a sharp jump in royalty payments that drove negative corporate EBITDA revisions, a process the bank now believes is complete.

MGM China has managed to maintain its market share in a highly competitive environment, according to the analysts, who also pointed to the operator’s lower capital expenditure needs, improved balance sheet, and limited risk of further downgrades as distinguishing factors.