Who Will be Crowned the 2014 King of the Casinos?

After taking a year off, many of the casino companies have stormed back to life in 2013. Industry leaders like Las Vegas Sands (NYSE: LVS  ) , MGM Resorts International (NYSE: MGM  ) , and Wynn Resorts, Limited (NASDAQ: WYNN  ) have led the group higher on robust revenue and earnings growth, and each one is up more than 50% year to date.

With projections calling for continued growth in 2014, the question for investors now becomes, which casino is the best investment going forward?

More than just a gamble
For the most part, the three major American casino companies have proven to be very capable in terms of growing revenue and earnings per share in recent years. The following is a breakdown of each company's projected growth rates for 2013 and 2014:

 

Las Vegas Sands

MGM Resorts

Wynn Resorts

Revenue Growth 2013

23.6%

6.2%

6.2%

Revenue Growth 2014

10.9%

4.9%

4.4%

EPS Growth 2013

39.7%

66.7%

29.3%

EPS Growth 2014

21.2%

195.7%

4.3%

With the exception of MGM Resorts' projected 2014 earnings-per-share growth, all of the data above indicates that next year is going to be a slower period for the major casino companies compared to 2013. However, the industry still appears poised for growth as all three companies are expected to perform relatively well.

With regard to revenue growth, Las Vegas Sands is the clear leader. The company is the only major casino operator above that is expected to increase sales more than 10% in 2013 and 2014. MGM Resorts and Wynn Resorts are expected to grow sales at similar and significantly slower rates in both years.

However, when it comes to EPS growth, it is MGM Resorts that is projected to lead the pack. In 2014, the company's earnings growth is expected to be almost 10 times better than the next closest competitors, Las Vegas Sands.

However, the staggering EPS growth rates for MGM also hint at potential problems. In fact, the company has not been very consistent with regard to growing earnings in the past, as it has reported a negative fiscal EPS number twice in the last three years. This is in stark contrast to both Las Vegas Sands and Wynn Resorts. 

Judging from past performance and future estimates, Las Vegas Sands looks to be the most efficient company in the industry. The casino giant is also growing very well compared to its smaller competitors.

Where's the value?
Surprisingly, the value is with the company that is growing the fastest, Las Vegas Sands. On a forward 12-month basis, the company is the cheapest with a P/E of 20.8 compared to Wynn Resorts' forward P/E of 23.5 and MGM Resorts' forward P/E of 90.7.

However, Las Vegas Sands falls a bit short in terms of dividend yield. The company's current dividend yield of 2%, although solid, is slightly lower than Wynn Resorts' dividend of yield of 2.4%. Unfortunately, MGM Resorts does not pay dividends at the current time.

Where's the growth coming from?
As has been the trend for a while, much of the growth for the large American casinos has been derived from Macau. The Chinese gambling hub has witnessed explosive growth in recent years, and casino operators lucky enough to have licenses in the area have benefited immensely.

In November, gambling revenue in Macau was reported to be approximately $3.8 billion, which represents a 21% year-over-year increase. This growth, which exceeded analysts' estimates by 1%, was helped by premiere events such as Manny Pacquiao's return fight against Brandon Rios and the annual Grand Prix motor race.

However, there are several reasons why the growth in Macau will likely not end anytime soon. The area is quickly becoming much more accessible to many Chinese patrons due to the expansion of rail links, ferry terminals, and an international airport.

Additionally, as the success of recent events like the Pacquiao fight and the Grand Prix race have demonstrated, the area is also becoming a hot-spot for leisure activities in general. Many of the major American casino operators are bringing the famous Las Vegas showmanship to China. The inclusion of luxury amenities like popular stores, dining establishments, and theaters is further strengthening the area and making it less dependent on pure gambling revenue.

Another potential area of growth for the casinos is the impending legalization of online gambling. While the idea of patrons staying at home to gamble may seem like a problem for the major casino operators, past events indicate that the casino giants will look to capitalize on the wave of state legalization by creating their own interactive suites or partnering with current ones.

Wynn Resorts' short-lived partnership with PokerStars in 2011 is a perfect example of the kinds of deals investors can expect to see in the ensuing months and years.

The king of the casinos
When it comes to casino operators, bigger is better, as Las Vegas Sands, the largest casino by market capitalization and revenue, is also the best investment.

The company does not just lead its competitors in terms of revenue growth; it has also been very consistent with regards to earnings-per-share growth and dividend payouts. A such, Las Vegas Sands remains the best way to capitalize on growth in Macau and other parts of the world as well as a recovering Las Vegas.

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  • Report this Comment On December 10, 2013, at 3:13 PM, blackjackkid wrote:

    Lvs is not on the internet gambling bandwagon and as such they are becoming a laggard. I'd go with MGM and Wynn.

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