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Jumping Back on the Las Vegas Sands Bandwagon

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Earnings season is over in the gaming world and that means we should take a step back and see just where the competitors stand. In the first quarter we saw Las Vegas Sands (NYSE: LVS  ) take steps forward in Singapore, even if they weren't as big as investors would have liked. Wynn Resorts (Nasdaq: WYNN  ) had a bit of good luck, while across Macau Melco Crown (Nasdaq: MPEL  ) can't seem to operate as efficiently as competitors. And last but not least, MGM Resorts (NYSE: MGM  ) jumped after losing less money than expected and is now the most expensive big company in gaming (EV to EBITDA).

As we've done before with gaming companies, the most effective way to get a feel for how expensive they are is to compare enterprise value to EBITDA. In the table below I have included market cap, net debt (long-term debt minus cash) and EBITDA. With that we can calculate an enterprise value/EBITDA ratio, which should tell us who is expensive and who is cheap relative to others.


Market Cap

Net Debt

Property EBITDA (TTM)


Melco Crown $5.5 Billion $984.5 Million $481.8 Million 13.5
Las Vegas Sands $33.2 Billion $6.8 Billion $2.6 Billion 15.4
Wynn Resorts $17.9 Billion $1.5 Billion $1.3 Billion 14.7
MGM Resorts $7.6 Billion $11.9 Billion $1.2 Billion 15.6

By this measure, it looks like Melco Crown is the least expensive of these stocks and MGM is the most expensive. But they're packed in a pretty tight range at this point.

Not all numbers are created equal
Now, if we consider that Las Vegas Sands still doesn't have a full year in Singapore under its belt and it is the only company with a major casino under construction, the story changes a bit. Melco Crown may have a lower EV/EBITDA ratio right now but that will likely change within a quarter or two. Wynn Resorts also doesn't have any casinos opening for at least four years.

And then there's MGM Resorts, which has the least exposure to a growing Macau and has to rely on a floundering Las Vegas market for most of its revenue. Recently shares have performed well, but I just can't see how you could justify paying more for MGM than any of the three companies I'm comparing it to.

The best buy in gaming
So after months on the Melco Crown bandwagon -- and seeing the stock rise 69% this year alone -- I think there is now a better horse in the race. Las Vegas Sands has proved to be consistent and with net debt falling, EBITDA rising, and a new casino on the horizon, I think the stock will outperform peers. That isn't to say Melco Crown and Wynn Resorts won't outperform the market from here, but I think Sands will lead the group.

For those who are interested, I am planning on covering my Melco position with calls, sell put options in Las Vegas Sands, and possibly close my MGM short position on Monday (when I can trade per our disclosure policy). In the spirit of complete disclosure I thought I would let all of my Foolish followers know first.

Who do you think is the best buy in gaming? Leave your thoughts in our comments section below.

Fool contributor Travis Hoium owns shares of Melco Crown and is short MGM Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. Motley Fool newsletter services have recommended Melco Crown Entertainment. Try any of our Foolish newsletter services free for 30 days. 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.

Read/Post Comments (7) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 20, 2011, at 5:57 PM, spokanimal wrote:

    Thanks for augmenting your "historical" metrics with the more "forward" looking perspective in the later part of your article. I believe that investing is a very, forward-looing endeavor and when one relies on simply an extension of the existing trajectory of metrics, it sets them up for a fall from "momentum grace".

    Re: LVS... I would add to your analogy of the future of their macau subsidiary in 2, important ways (besides simply the launching of sites 5 and 6 next year:

    1.) After Sands dropped it's YOY market share from around 21% a year ago to roughly 17% currently, they embarked on a VIP initiative whereby they are sgnificantly spending on junket suites that are built-to-order for some top aggregators in the region. As they are underperforming about everybody in that realm now, it's safe to say they can only improve and their current fortitude says a lot.

    2.) Venetian Macau, while profitable, is significantly under-utilized. It's a giant, diverse facility that is in an area (cotai) with just 6,000 hotel rooms. Everybody who "plays-where-they-stay" is staying downtown and a lot of Venetian's gamng dollar is visiting from there.

    Galaxy's 2,300 hotel rooms (just behind Venetian) and the 6,400 rooms that Sand's sites 5 &6 will add to cotai will increase room capacity to almost 15,000 rooms by later in 2012 and I believe the street under-anticipates the extent to which that will help fill Venetian's lower capacity utilization.

    Remember, in late 2012, every cotai resort will STILL be adjacent to Venetian (except Grand Waldo, which realistically does't count).


  • Report this Comment On May 20, 2011, at 8:50 PM, dahlman1234 wrote:

    Listen to LVS conference calls , and you will hear their GIANT THIRST FOR GROWTH . They are thinking 24-7 about growth and expansion. log onto their website. best to all. drexel hill,pa.

  • Report this Comment On May 20, 2011, at 11:13 PM, JF125780 wrote:

    I've owned LVS since 2004 at 45. a share. I still like them, but I'm disapointed in the insiders rewarding themselves massive bonuses and options and nothing for the shareholders,

  • Report this Comment On May 21, 2011, at 12:42 PM, Senescent wrote:

    Excellent discussion Travis. Here are a couple of further thoughts.

    1) Use of debt. When the "benchmark" EV/EBITDA is around 15 debt at under 6%/year ought to be a steal for these companies. The debt doesn't have to be very long-term if they are gushing cash flow. Neither Melco nor Wynn is making adequate use of debt. Ignoring the past as water under the bridge, these companies would improve shareholder value by using more debt.

    2) I share your concerns about MGM although I wonder what might be afoot with Kerkorian stepping down. I keep having these dreams of Wynn doing a deal with MGM - which would be one way he could increase his use of debt AND settle some old scores from the takeover of Mirage by MGM.

    3) The D part of EBITDA is depreciation. Any thoughts as to how much of the depreciation actually needs to be used for physical refurbishment of property and is not available to flow back to owners? I think it's a small percentage but I really have done no homework on this.

  • Report this Comment On May 21, 2011, at 5:14 PM, Pkylie wrote:

    Come again, how's LVS a good bet now when for the last 6 months it trailed growth rate in Macau by 50% and trails RWS in Singapore by a mile. In vegas, Sheldon Adelson was busy insulting regulars by eliminating "comps" driving them to competitors like Wynn and MGM.

    Meanwhile, every gaming jurisdiction is investigating ongoing crimes at LVS , from Macau to Singapore, from vegas to bethlehem.

    It has also been widely mentioned LVS last quarter was light not so much because of low hold but because they went light on money laundering when the spotlight is on.

    Also widely reported is the lack of gaming tables for sites 5 & 6 and Macau not granting coop sales at the Four Season.

  • Report this Comment On May 23, 2011, at 11:33 AM, MutualFundMonday wrote:

    Good article Travis.

    @ Pkylie, how's your short from the teens working out?

  • Report this Comment On May 23, 2011, at 11:40 AM, MutualFundMonday wrote:

    @ Travis,

    Trade how you want, but consider possibly holding onto your MGM short. The IPO is fully priced in and any hiccup will cause a major selloff to below 14 levels.

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