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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.
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.