Casino stocks have always been a favorite of mine (to watch, not necessarily to buy). Having grown up near Atlantic City, I grew up in the gambling culture, and was fascinated both by the atmosphere created by casinos and the business itself. For some reason, a business where people come in and voluntarily give you their money seemed appealing!
About Las Vegas Sands
My silly casino jokes aside, Las Vegas Sands Corp. (NYSE:LVS) really has done a phenomenal job of turning itself around. In fairness, the share price never should have dropped quite so much, but in early 2009, the market acted as if the sky were literally falling on anything related to discretionary spending.
Las Vegas Sands Corp. (NYSE:LVS) operates some of the most well-known Vegas casinos, including the Venetian, Sands, and Palazzo. They also have ventured into Asia, with the Venetian Macau, Sands Macau, and Four Seasons Macau. It is interesting to note that all of those were open before the financial crisis, and the amount of leverage on Sands’ balance sheet as a result of these is one of the main reasons their stock was treated particularly harshly by the market.
The company also operates a casino in Pennsylvania, and opened a resort in Singapore a few years ago called the Marina Bay Sands. Altogether the company’s revenues have climbed tremendously, from under $700 million in 2003 to over $13 billion expected this year.
A Stable Casino Company? No Way!
While there is really no debating the fact that Las Vegas Sands Corp. (NYSE:LVS) has a lot of debt on its balance sheet (and the debt level has increased in recent years as the company finances new projects in Asia), $10 billion in debt with $3 billion in annual revenues, as the company had in 2007, is a completely different thing than $10 billion in debt with over $11 billion in revenues. One scenario is sustainable and one is not. Additionally, just recently the company approved a $2 billion share buyback plan, which is generally a sign of a company of improved health.
Due to the success of their ambitious expansion over the past decade or so, Las Vegas Sands Corp. (NYSE:LVS) trades for a relatively high P/E ratio of 27 times last year’s earnings. However, if the company is able to meet the growth projections that analysts have made, this is actually fairly cheap. The company is expected to earn $2.81 per share for 2013, increasing to $3.20 and $3.69 in 2014 and 2015, respectively. This corresponds to a 3-year annual earnings growth rate of over 20%. If the popularity of casino gaming continues its growth in popularity, particularly overseas, there is no telling how big this company could get over the long run.
Alternatives
In terms of market cap, Wynn Resorts, Limited (NASDAQ:WYNN) is about one-fourth the size of Las Vegas Sands, with slightly less ambitious overseas expansion. Wynn Resorts, Limited (NASDAQ:WYNN) operates the Wynn Las Vegas, Encore at Wynn and Wynn and Encore Macau. The company also has another resort planned for Macau, set to open in 2016. Wynn Resorts, Limited (NASDAQ:WYNN) has had very impressive revenue growth and has a similar debt load to Las Vegas Sands, relative to its size. Wynn trades for just under 24 times last year’s earnings, and is projected to grow its earnings at about 14.8% annually going forward.
MGM Resorts International (NYSE:MGM) is the third largest publicly traded casino company in the U.S. and is about half the size of Wynn Resorts, Limited (NASDAQ:WYNN) by market cap. MGM Resorts International (NYSE:MGM)’s casinos are mostly in Las Vegas, where the company operates 10 casino/hotels on the strip including the $8 billion City Center project. MGM Resorts International (NYSE:MGM) actually has higher revenues than Wynn Resorts, Limited (NASDAQ:WYNN) at about $9 billion per year, but the company has struggled to turn a profit, having posted negative earnings in four out of the last five years, and is also projected to report a small loss this year. Earnings are expected to turn slightly positive in 2014, but the lack of profitability over the recent past is one of the main reasons shares trade at such a discount in terms of revenues and number of casino resorts.
Conclusion
While MGM Resorts International (NYSE:MGM) could very well produce the best long-term gains out of the three, it is nothing more than a speculative play at this point. As far as the other two go, it seems like a few of the historically volatile casino stocks are starting to look like legitimate investments, with Las Vegas Sands looking like a slightly better value at the moment.
The article Are Casino Stocks Becoming Less of a Gamble? originally appeared on Fool.com.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Matthew 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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