Brokerage Sanford C Bernstein has downgraded SJM to “underperform”, claiming that a 15% rally in the company’s stock price this year is unwarranted and that the opening of its new Grand Lisboa Palace integrated resort in Cotai will likely be delayed until 2019.
“We believe current SJM stock price is overpriced at this stage and investors are over-rewarding SJM with a market recovery from which it has only marginally benefited,” said analysts Vitaly Umansky and Zhen Gong in a Thursday morning note.
“The market currently anticipates a 2H 2018 opening of Grand Lisboa Palace (as the company has continued to emphasize). We have concluded that the opening will likely be delayed until 2019 and we have strong concerns about how quickly it will be able to ramp up. In our view, investors are overly bullish on the opening time and its ramp-up potential.
“Further, a lack of growth and low profitability plagues SJM. Even incorporating the Palace opening, we forecast 2016-2019 EBITDA CAGR of only 5%, well below our estimate for the Macau industry of 12%.”
Bernstein said it has reduced estimated EBITDA for 2018 and 2019 to 19% and 17% respectively – 23% below consensus in 2018 and 24% below in 2019.
“SJM should continue to trade at a valuation discount,” it added. “We see no company specific catalysts that will benefit the company in the near or medium term and the YTD stock price performance has been overdone.
“We see little to excite us in the near term, even if the stock looks relatively ‘cheap’ as some investors continue to argue. Certain stocks are ‘cheap’ for a reason – we think this is one of them.”
Construction of Grand Lisboa Palace was recently halted for five weeks following the death of a worker on site.
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