Betting Big on Cotai: Why Wynn Resorts Will Outperform Las Vegas Sands

Rendering of The Parisian in Macau. Source: Las Vegas Sands.

There's a lot of uncertainty in Macau right now, but one thing that's for sure is that multiple shiny new resorts will be opening on Cotai in the next few years. Las Vegas Sands (LVS -0.37%) and Wynn Resorts (WYNN -1.78%) are two of the developers building new resorts at the moment, and when they're completed, the companies hope to see a large financial impact.

For investors, these buildings on the horizon cloud the value of both Las Vegas Sands and Wynn Resorts. We need to look beyond 2016 and project what the impact of new properties could be on operations to determine which one of these stocks is the better bet for investors.

Rendering of Wynn Palace in Macau. Source: Wynn Resorts.

Cotai's impact is enormous
The properties that have opened on Cotai so far have been great successes financially. Las Vegas Sands' Venetian Macau and Sands Cotai Central have generated $1.2 billion and $807 million in EBITDA, respectively, over the past year and Melco Crown's City of Dreams made $949 million.

Projecting exactly what The Parisian and Wynn Palace will generate is difficult given the competition developing in the area, but both could generate between $500 million and $1 billion in additional EBITDA.

When looking at the valuation of Las Vegas Sands and Wynn Resorts, these new properties could have a big impact. Below, I've outlined the companies' enterprise value to EBITDA ratio for the past 12 months and then projected what that ratio would look like if both new properties generated $1 billion in EBITDA.

Source: Company earnings releases and Yahoo! Finance. Calculations by the author.

You can see that because of Wynn's smaller base the new resort could have a much larger impact on valuation. On this basis alone, Wynn looks like a better investment today.

Head-to-head comparisons
There's another reason to think Wynn Resorts is the better investment today, and that's Wynn's continued outperformance of Las Vegas Sands in areas where they operate head-to-head.

In Las Vegas, the companies operate properties right next door to each other yet Wynn Las Vegas generated 61% more EBITDA over the past year than Venetian and Palazzo Las Vegas. In Macau, Wynn generated more than three times the EBITDA of Sands Macau.

Source: Company earnings releases.

Wynn Resorts' properties typically perform much better than Las Vegas Sands, and with the stocks trading at a similar valuation and both building a single new property on Cotai, it looks like Wynn has much more upside for investors.