The gaming industry has had a resurgence in the last two years as Macau's gaming market has recovered and Las Vegas continues its slow and steady growth rate. That's been a broad benefit to Las Vegas Sands Corp. (NYSE:LVS), the biggest gaming company in the world.
But the gaming industry is also getting more competitive as companies like Wynn Resorts (NASDAQ:WYNN) and MGM Resorts (NYSE:MGM) expand in the U.S. and abroad. And that competition may make Las Vegas Sands less attractive to investors long-term.
Where Las Vegas Sands stands today
There are three main regions where Las Vegas Sands generates revenue and earnings: Macau, Singapore, and the U.S. In the past year, it generated $2.4 billion of EBITDA -- a measure of cash flow from a resort -- from its Macau properties, by far its most important market. Marina Bay Sands in Singapore generated $1.6 billion in EBITDA and Las Vegas and the Bethlehem resort in the U.S. generated $536 million. You can see that Asia is by far the company's most important market.
In total, Las Vegas Sands generated $4.6 billion in EBITDA in the past year, which is what we should measure versus the company's outstanding debt and market cap, or total enterprise value. With net debt of $7.8 billion and a market cap of $49.6 billion, the EV/EBITDA multiple of 12.5 is what investors are paying for the company right now. For perspective, that's higher than MGM Resorts but less than Wynn Resorts, two big competitors in the gaming industry.
Growth opportunities are limited
What Las Vegas Sands lacks right now is growth opportunities. The company spent most of the last decade building out Macau and Singapore but doesn't have any major resorts in the pipeline. Japan is a place where CEO Sheldon Adelson has said he would spend $10 billion to build a resort, but that's a country that will have a very competitive bidding process when gaming opens up.
Outside of any organic growth in Macau, Singapore, or the U.S., Las Vegas Sands isn't going to be much of a growth stock. In Macau, with the recently completed Wynn Palace, MGM Resorts is finishing up MGM Cotai, and SJM is building another resort in the Cotai region, which means there's reason to believe Las Vegas Sands may actually lose market share to competitors. That would be bad for the company's overall cash flow generation.
Is there enough value in Las Vegas Sands?
I think Las Vegas Sands is one of the great cash flow companies in gaming, but in 2017 it certainly isn't a growth stock. Its enviable position with resorts in Singapore and Macau are protected from too much competition because the regions have a limited number of casinos licensed. They may not grow for Las Vegas Sands, but they'll continue to churn out cash.
With that cash flow, Las Vegas Sands has become a solid dividend stock with a 4.7% payout right now. That's the biggest reason to own the stock given limited growth opportunities and the dividend is just enough for me to think it's a buy, which is why I have a thumbs up rating on My CAPS page. I just wouldn't expect this to be a great performer unless it wins the bid to build a resort in Japan, which is no guarantee with every gaming company in the world eyeing the coveted Japanese market.