Don’t let today’s market recovery fool you. The next several weeks are likely to be volatile and there’s one S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stock in particular that is tipped to fall.
Morgan Stanley believes there is a 60% to 70% chance that the Crown Resorts Ltd (ASX: CWN) share price will lose ground over the next 60 days.
The warning hasn’t hurt the casino operator today. Shares in Crown closed 1.1% higher at $11.56 when the ASX 200 gained 0.5% on Wednesday.
Catching the bug
Tourism and leisure stocks have been under pressure from the Wuhan coronavirus scare, and Crown is no exception. Other stocks that have taken a beating include the Sydney Airport Holdings Pty Ltd (ASX: SYD) and Qantas Airways Limited (ASX: QAN) share price.
But there seems to be more downside risk for Crown if Morgan Stanley is to be believed.
“We believe there is risk to the downside near-term as there are concerns about a potential slowdown in Chinese tourism and any follow-on impacts that could weigh on Casino VIP growth (~18% of F20e revenue),” said the broker.
There’s already a dark cloud hanging over Crown before fear of a SARS-like pandemic surfaced. Boardroom issues with its major Chinese shareholder and patchy earnings over the past year have tainted the stock.
The casino relies heavily on Chinese visitors but panic over catching the untreatable disease is keeping many Chinese at home.
How long will the virus scare last?
The silver-lining is that some brokers think the impact of a virus outbreak won’t last long. Macquarie Group Ltd (ASX: MQG) thinks the first three months will be the worst and that a recovery could come in the second half of calendar 2020.
This is why the broker upgraded Sydney Airport to “outperform” from “neutral” and you can read about it here.
In Crown’s case, I am less sure as the company is already struggling on multiple fronts, as mentioned. This means the stock could be more vulnerable to a sell-off than most.
I believe that any big market sell-off from the pandemic panic will prove to be a buying opportunity for ASX investors, although Crown isn’t on my shopping list.
Morgan Stanley is recommending Crown at “equal-weight” (equivalent to a “hold”) with a price target of $11.80 a share.
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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited, Macquarie Group Limited, and Sydney Airport Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020