Las Vegas Is on a Comeback -- or Is It?

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Shares of MGM Resorts (NYSE: MGM  ) and Boyd Gaming (NYSE: BYD  ) took off like a rocket on Tuesday after Bank of America/Merrill Lynch upgraded the stocks. The theory is that improving conditions in Las Vegas will drive both stocks higher, and that their high leverage will give investors leveraged returns.

But I need to throw a red challenge flag and question the soundness of that investment thesis.

First, there's a problem of valuation. Boyd is trading at a 12.2 enterprise value/EBITDA multiple, and MGM is a whopping 24.1 times multiple. Versus higher-growth competitors, these stocks aren't exactly cheap at these levels. I would much rather own stocks with exposure to high-growth areas in Asia, like Las Vegas Sands (NYSE: LVS  ) with a 21.1 EV/EBITDA multiple or Wynn Resorts (Nasdaq: WYNN  ) with a 18.7 multiple, than either Boyd or MGM.

Is Las Vegas really recovering?
Over the last 12 months, total gaming win is up 4.63% on the Las Vegas Strip. For Clark County (the home of Las Vegas), gaming win was only up 0.80% in the last 12 months. I could buy that The Strip is getting better, but locals aren't coming out in droves to sit at slot machines so why should we believe Boyd -- with a strong focus on the locals market -- is on the cusp of a comeback?

To make matters worse for Boyd, unemployment remains at nosebleed levels in Nevada. With national unemployment at 9%, Nevada has 14.5% of its workers still searching for a job. And the locals market is supposed to improve?

Neither Boyd nor MGM strikes me as particularly cheap or poised for massive growth over the next few years. If I have to choose between the two, MGM seems more likely to benefit from improving trends in Las Vegas, but even there I'm skeptical of the company's valuation and debt burden. Boyd Gaming on the other hand has too much exposure to the locals market, a struggling customer base I don't see improving quickly.

Interested in reading more about MGM Resorts? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.

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Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (4) | Recommend This Article (1)

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 February 10, 2011, at 7:36 PM, vegaslocal wrote:

    Analysts of the local economy of Las Vegas appear to never understand that when housing slows or stops and jobs decrease, the workers flee to wherever they can find work. The "nosebleed" statistic used to reference unemployment in Nevada hardly represents the actual percentage of people in Nevada looking for a job. A large majority of the unemployed workers in Nevada have long left Las Vegas in the search for work, but remain on the system. If they would stop extending the unemployment benefits, you would see a huge decrease in the unemployment statistic in Nevada.

  • Report this Comment On February 10, 2011, at 8:26 PM, TMFFlushDraw wrote:

    Doesn't that still reinforce my basic point that locals won't be gambling at Boyd casinos? If fact it makes it worse. If they no longer live in LV at all they can't spend any money there.

    Travis Hoium

  • Report this Comment On February 10, 2011, at 8:50 PM, sonnydelite wrote:

    Las Vegas is so played out. I am tired of that strip. I rather fly to Macau and gamble. Can't wait for Florida to open gambling.. I rather fly there as well

  • Report this Comment On February 11, 2011, at 3:59 PM, Streetkill wrote:

    I disagree with the negativity on Boyd. As far as value, its p/s and p/b are quite low, and it is still at least 80% off its highs. While it might be nice to buy into Macau, those stocks were up somewhere between 100 and 200 percent in the last year, so the revenue is largely priced in already. Domestic gaming hasn't yet seen the surge, and with the economy as a whole recovering, I agree with the analyst reports that Boyd will benefit in its locals market, not only in Vegas but elsewhere.

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