Las Vegas Sands Corp (NYSE:LVS) and Caesars (NASDAQ:CZR) are two of the biggest gaming companies in the world by revenue, but that's really where the similarities end. Las Vegas Sands may be based in Las Vegas, but it gets most of its revenue in Asia. And Caesars is a Las Vegas-centric company with a vast majority of its revenue coming from the U.S.
From an investment perspective, they're very different as well. Caesars is still dealing with the bankruptcy of its largest operating unit, and investors face a lot of uncertainty there. Here's how investors should be comparing shares of Las Vegas Sands and Caesars if they're betting on gaming stocks.
Value versus growth
Caesars' main operating unit hasn't emerged from bankruptcy yet, so projecting value in the business is a little difficult. But in a recent presentation management estimated the company would have a $8.0 billion market cap, $7.7 billion in net debt, and $5.0 billion in capitalized rent expense, or costs associated with renting resorts Caesars will no longer own outright. In the last twelve months, the company has generated $2.2 billion in EBITDA, meaning it has an enterprise value/EBITDA value of 9.3.
Las Vegas Sands has a $45.97 billion market cap with $7.83 billion in net debt, compared to $4.36 billion in property EBITDA over the last twelve months. The 12.3x enterprise value/EBITDA is definitely higher than Caesars' projected multiple at the moment.
What shouldn't go overlooked is that Caesars doesn't have nearly the growth opportunities Las Vegas Sands has. Caesars has no presence in Asia, which is its biggest drawback. Even after the decline in Macau's gaming revenue, Macau and Singapore are still incredibly profitable and high-return resorts for Las Vegas Sands, and with the region now growing gaming at double digits early in 2017 we could see even more growth ahead.
Risk versus reward
I alluded to the risk and reward dynamic, but I think this is really where Las Vegas Sands separates itself from Caesars. Above I pointed out that Las Vegas Sands had $4.36 billion in EBITDA over the past twelve months compared to $7.83 billion in net debt. That's much lower leverage than Caesars with $2.2 billion in EBITDA and $7.7 billion in net debt.
But that doesn't even tell the whole story. EBITDA is a measure of cash flow that we use in gaming, in large part because it pulls out the non-cash depreciation costs that don't show the cash coming from an already constructed casino. But it doesn't include ongoing maintenance and upgrade spending, which can be hundreds of millions per year. This is where Caesars' base of 47 casinos and over 34,000 hotel rooms becomes a costly fleet to keep upgraded compared to Las Vegas Sands' 8 resorts around the world. And remember that those 8 resorts generate double the EBITDA as Caesars' 47 casinos.
Las Vegas Sands is lower risk because it has less debt to EBITDA, but also because it can keep more of the cash generated from the casino and fund growth or dividends for investors.
Las Vegas Sands is the clear winner today
Las Vegas Sands simply has better cash generating resorts, a better balance sheet, and better geographical locations with its assets in Asia. Caesars may emerge from its current financial uncertainty to be a sustainable company, but if the gaming market goes through another decline like it did during the last recession it isn't built to last the way Las Vegas Sands is. And with a 5% dividend yield Las Vegas Sands is the better bet for gaming investors.