If there’s a single trend over the past ten years in the casino business, it has been internationalization. Las Vegas, it would seem, is no longer the gambling capital of the world, it has been overtaken by Macau, China. The domestic economy is still important to most large casino operators, but economic conditions in China are even more important. Let’s take a look at a few of the larger casino operators and where they do business.
Las Vegas Sands Corp. (NYSE:LVS) is no longer an American focused casino operator. In 2012, the U.S. operations accounted for just 17% of revenue, while Singapore accounted for 24%. But this company’s future lies in China, where in Macao, Las Vegas Sands Corp. (NYSE:LVS)’s four properties accounted for 58% of 2012 revenue. Las Vegas Sands Corp. (NYSE:LVS) recently reported a record breaking first quarter with revenue of $3.3 billion. This was powered by double digit sales increases in China and Singapore, along with a seven percent increase in domestic revenue.
The company is continuing to invest in China, and with increasing wealth and travel to that part of the world, the future is bright. It also has plans for an enormous, multibillion dollar facility near Madrid, Spain. As more properties pop up, we should see substantial profit growth over the next three to five years. With its strong balance sheet, tremendous international exposure, and solid dividend history, Las Vegas Sands Corp. (NYSE:LVS) is suitable for many investors.
The first quarterly profit in five years
MGM Resorts International (NYSE:MGM) is more locally focused than Las Vegas Sands Corp. (NYSE:LVS), as it has 15 casinos across the United States, and just one in Macao. Even MGM’s expansion plans are domestic, you should expect to see them in balmy locals like Massachusetts and Maryland. Over the long run, many think it would be better off spending expansion dollars overseas.
In the first quarter, the company posted its first quarterly profit in five years, with earnings of $6.5 million, or a penny per share. Revenues of $2.35 billion were up just 2.2% from the first quarter of 2012. Ultimately, a substantial increase in China was overshadowed by big decreases in Detroit and several Las Vegas Sands Corp. (NYSE:LVS) properties.
It appears that MGM Resorts International (NYSE:MGM) has gotten old, tired, and burdened by debt. 76% of its working capital is debt and with a weak bond rating, it may be a tough road ahead for this company who still believes in growth in American casinos. Not cashing in on China is a catastrophic error, and without it, MGM Resorts International (NYSE:MGM) doesn’t have any chance of catching Las Vegas Sands in revenues or profits.
The asian growth giant
Since Chinese casino operations are stronger than those in the United States, it would follow that Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), which operates solely in Macau, could be a winner. Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) is incorporated in the Caymen Islands, and registered as an overseas company in Hong Kong. It has rebounded strongly from the recession, and revenue has increased by 51% on average over the past 5 years. Its earnings, which turned positive in 2010, grew to $1.24 per share last year.
What benefits Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) and others operating in Macao is policies of the Chinese government in terms of boat and rail travel. Melco’s “City of Dreams” drew $2.9 billion in revenues in 2012. Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) is working to diversify with its operation in the Philippines, where it plans to construct a $1 billion facility in Manila Bay.
Earnings are poised to advance in the 25% range for the next several years. So, what’s the problem? How about a price to earnings ratio of 37, brought on by a 113% increase in the stock price over the past year. Due to valuation, many are tempted to wait for a price pullback. With the way Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) has been performing, many may be waiting a long time.
Foolish final word
The casino business is benefiting from growing wealth, accessibility, and awareness. Of the 3 large casino operators, only those with significant Asian exposure are solid investments. Therefore, you should avoid MGM Resorts International (NYSE:MGM) and look closer at Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) and Las Vegas Sands. An investment in either is a solid bet.
The article 3 Large Casinos to Watch in 2013 originally appeared on Fool.com.
Bill Edson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Bill is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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