Las Vegas Sands Corp. (NYSE:LVS) has risen 16% year to date, though the stock is down from its levels a year ago while the S&P 500 is up 11%. In 2012, the company’s net revenues (which subtract out promotional allowances) grew 18% compared to 2011. With costs rising in line with sales, earnings showed only modest changes even after adding back an impairment charge. Net income available to common shareholders, and therefore earnings per share, did increase but this was entirely due to deductions in 2011 related to preferred stock rather than any fundamental change in the business. Part of the reason for high revenue growth without similar improvements on the bottom line was that Las Vegas Sands opened new locations during 2012. Net revenue increased considerably in Asia (which was responsible for about 60% of net revenues) but even in that geography there was little change in business for some locations from 2011.
At a market capitalization of $46 billion, Las Vegas Sands trades at 30 times its trailing earnings. While revenues may improve as the company operates its new locations for a full year rather than only part of one as it did in 2012, we have seen that net income did not react that strongly as a result of these openings. Wall Street analysts expect earnings per share to increase over the next couple years, resulting in a forward P/E of 18, but we would hesitate to be so optimistic and of course even after that point Las Vegas Sands would have to continue to deliver higher earnings growth than it is currently experiencing.
We can compare Las Vegas Sands to Wynn Resorts, Limited (NASDAQ:WYNN), MGM Resorts International (NYSE:MGM), Melco Crown Entertainment Ltd (NASDAQ:MPEL), and Caesars Entertainment Corp (NASDAQ:CZR). MGM and Caesars are struggling: each is expected to be unprofitable both this year and next year (though MGM is projected to at least come close in 2014). Those two casinos are also much more highly levered than the other three and partly because of this their betas- which are in the 2.5 to 2.6 range- place them at a much higher level of market exposure than Las Vegas Sands. Neither of them is looking that good in terms of their business conditions either, and as a result we would not be buying either stock.
What about Melco Crown and Wynn Resorts?
Wynn and Melco Crown are at least profitable, but as with Las Vegas Sands they look pricy with trailing earnings multiples of more than 25. Wynn’s earnings actually fell 42% last quarter compared to the fourth quarter of 2011, partly due to a small decrease in revenue but mostly due to narrower net margins. Again, even if the company hits Street targets for 2014 it would be trading at 18 times earnings at the current stock price, and so would need more improvements going forward and so we think that it’s a bit too speculative. Melco Crown is up 65% in the last year and currently carries trailing and forward P/Es of 31 and 19, respectively. It actually reported an increase in revenue in its most recent quarter compared to the same period in the previous year, but as with Las Vegas Sands net income was less responsive. In addition, Melco Crown’s focus on Macau leaves it less geographically diversified and more dependent on the macroeconomy, as shown by its beta of 2.6.
Casinos in generally don’t look like attractive investments right now. MGM and Caesars are, in the eyes of the sell-side, at least two years from breaking even and we’d be quite concerned about their leverage as well. The other three companies, including Las Vegas Sands, are valued at quite high levels relative to their historical earnings and yet have not been delivering much earnings growth- and that is with Las Vegas Sands having opened a new location, which should theoretically have boosted net income as well as net revenues. As a result we can’t recommend Las Vegas Sands or any of its peers from a value perspective.
Disclosure: I own no shares of any stocks mentioned in this article.
