Casino stocks have been a good bet so far this year. As a group, they've risen over 40% year-to-date. Though chasing such returns isn't the best strategy for investors, there still might be longer-term gains left in some of the names. Boyd Gaming (BYD -0.02%), MGM Resorts (MGM -0.33%), and Wynn Resorts (WYNN -1.78%) are three casino operators that have projects in development that may be able to deliver future upside.
Boyd Gaming: A varied operator going online
Boyd Gaming is a well-diversified owner of twenty-two gaming properties. With about $2.9 billion in expected annual revenues, it receives roughly 29% of sales from various legacy properties in the Midwest and Southern U.S., 27% from a half-stake in the Atlantic City Borgata casino, and 26% from a mix of locations in the Las Vegas area. The operations of Peninsula Gaming, five casinos purchased by Boyd in November 2012, account for the remaining 18% of revenues.
The company reported a disappointing quarter recently, though net revenues rose 20.6% from 2012 and adjusted EBITDA (earnings before interest expense, taxes, depreciation, and amortization) jumped 49.9%. EBITDA is a common indicator for a casino company's ability to generate a return on their business. Since gaming enterprises are typically real estate intensive and heavily funded by debt, their high interest costs and depreciation amounts tend to distort standard profitability measures.
Wall Street didn't seem very impressed with the company's results, which was probably because the growth was mainly due to the Peninsula acquisition. The company's various regions showed mixed results. In Atlantic City, the company had surprisingly good performance, with Borgata revenues rising 6.9% and adjusted EBITDA jumping 39.7% from 2012. Boyd struggled at its legacy Midwest and South properties, though, with revenues from these properties slumping around 7.8% and adjusted EBITDA falling 14%.
Though quarterly results were ambivalent, Boyd might possess an ace up its sleeve. Borgata recently received the first Internet Gaming Permit granted in New Jersey, and the company believes it will be among the first operators to offer real-money online gaming. While Nevada went live with online gambling earlier this year, it is expected that New Jersey with its greater population will generate more action. Estimates range up to possibly as much as $500 million to $1 billion annually. If it can realize its first-mover advantage, Boyd could take a substantial cut of this new revenue source.
MGM Resorts: A two new properties play
MGM Resorts International is another interesting casino story. The company has a robust portfolio that includes well-known casino brands in Las Vegas, a 51% interest in MGM China Holdings (which owns the MGM Macau resort), and other properties located in Nevada, Mississippi, Illinois, and Michigan.
MGM Resorts reported solid results in its recent quarter. Net revenue increased 9% from the prior year and adjusted EBITDA rose 24%. While the company's domestic casino revenues and adjusted EBITDA grew respectably, the real take was in Macau. MGM China's revenue grew 22% and EBITDA jumped over 25% from last year.
The company has two projects going that could potentially prove valuable. One looks to take advantage of the gaming boom in China. The $2.6 billion MGM Cotai project, being built on approximately 17.8 acres, will add roughly 1,600 hotel rooms, casino and retail space, and entertainment venues to MGM's Macau presence. Groundbreaking took place in February, and an early 2016 opening is anticipated.
MGM Resorts might also get a boost from its 50% stake in CityCenter Holdings, an unprecedented urban development project located on the Las Vegas Strip. With the ARIA Resort & Casino its featured centerpiece, the project also features a non-gaming boutique hotel, a retail and entertainment district, and a luxury condominium-hotel. All of these components are linked by monorail and are located on the 67-acre spread.
First planned in 2004, CityCenter was nearly put under by the 2008 global credit crisis and recession. Under financial stress in 2009, MGM issued stock and secured bonds to help keep construction going. In 2010, the company needed to take over $1 billion in charges after revised forecasts for the development came in well below expectations.
Those troubled day's look to be over now, however, and the project's unique architecture and amenities seem to be catching on. Recent quarterly results show CityCenter's resort revenues increasing 2% from a year earlier, with adjusted EBITDA climbing 6%. Though CityCenter's effect on MGM 's bottom-line might not be significant relative to the Macau expansion, the project's success should meaningfully increase the company's asset value.
Wynn Resorts: All-in on China
Wynn Resorts is a major player in the Chinese gaming market. The company, which may have been best known for its Las Vegas properties, now generates over 71% of its revenue from Macau. The casino operator reported excellent results in its latest quarter: net revenues increased 6.9% compared to 2012, and adjusted EBITDA jumped 8.2%. While Las Vegas sales rose 1.1%, revenue from China grew 9.6%. Macau EBITDA increased 12.6% and accounted for over 75% of the company's total EBITDA.
Wynn Resorts is looking to boost its Chinese presence, and it's easy to see why: industry-wide gambling revenue in Macau was about 10 times that of the Las Vegas Strip in the past quarter. To get a larger share of that booming business, the company's Wynn Palace project is currently under construction. Started in February with plans to open in 2016, this $4 billion development is located in the popular Cotai region.
Wynn Palace may deliver Wynn Resorts substantial profits if Chinese gaming stays vibrant. Casino industry legend Steve Wynn, the company's founder, chairman, and CEO, noted that the Cotai development is the "single most important project" in the firm's history.
Next steps
Casino stocks have had a good run, but companies like Boyd Gaming, MGM Resorts, and Wynn Resorts are undertaking some intriguing projects that could offer additional long-term rewards. Taking a closer look at these casino operators, especially on any share weakness, might be a gamble that eventually pays off.
