Casino Stocks: Gambling on the Downside

06/02/2015 9:00 am EST

Focus: STOCKS

Casino stocks are getting hammered on negative brokerage attention, observes contrarian trading expert Alex Eppstein, of Schaeffer's Investment Research.

Among the sector's notable losers are Las Vegas Sands (LVS), MGM Resorts International (MGM), and Wynn Resorts, Limited (WYNN).

Las Vegas Sands saw its price target cut at Sterne Agee CRT and Morgan Stanley, echoing the bearish brokerage attention the security recently received. Now the stock is down 16.4% since its early April high of $59.90.

Despite this troubling technical trajectory, the stock's consensus 12-month price target still stands at $57.44, a nearly 15% premium to current trading levels.

What's more, half of the analysts covering the shares consider them a buy or better, with the other half doling out a hold opinion, with not a single sell to be found. This could pave the way for a round of downgrades and/or additional price-target reductions.

In a similar vein, MGM Resorts International dropped after Sterne Agee CRT and Morgan Stanley trimmed their respective price targets.

Year-over-year, the shares have given back more than one-fifth of their value. This pitiful performance could be in focus this Thursday as the gaming company holds its annual shareholder meeting.

Options traders have been surprisingly bullish toward MGM in recent months. The stock's 50-day call/put volume ratio is 3.82, with nearly four calls bought to open for every put.

What's more, this ratio ranks just 2 percentage points from a 52-week peak. A capitulation among these optimists could send MGM lower.

Finally, Wynn Resorts is fresh off a two-year low of $103.75 and Sterne Agee CRT and Morgan Stanley have slashed their price.

The stock has fallen precipitously since reaching an all-time best of $249.31 in March 2014, pressured by its 10- and 20-week trend lines. Nevertheless, short-term options traders have displayed an unusually strong affinity toward Wynn calls over puts.

The equity's put/call open interest ratio ranks in the bottom quartile of its annual range. Should these bullish speculators change their tune, it could exacerbate WYNN's technical struggles.

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