Fear has finally entered the market again and, as usual, one of the first sectors to take a punch to the gut is gaming. I have yet to see a group of stocks that can be so high when times are good and so low when we're worried about the economy.
But for investors that leads to opportunity if you can buy low and sell high. So where do Macau's best casino companies, Las Vegas Sands
To answer that lets take a look at one of gaming's favorite valuation methods, enterprise value/property EBITDA. In the chart below I will keep it simple using trailing twelve-month property EBITDA, net debt on each company's balance sheet and the current market cap from Yahoo! Finance. We'll get into adjustments that may make your head spin later.
|
Company |
Property EBITDA (TTM) |
Market Cap |
Net Debt |
EV/Property EBITDA |
|---|---|---|---|---|
| Las Vegas Sands | $2.2 Billion | $27.3 Billion | $7.1 Billion | 15.5 |
| Wynn Resorts | $1.2 Billion | $14.9 Billion | $2.0 Billion | 14.5 |
| Melco Crown | $430.4 Million | $3.7 Billion | $1.2 Billion | 11.5 |
So far it looks like Melco Crown is the cheapest competitor, unlike a few months ago when I did a similar analysis, but there are a few things we should consider. Las Vegas Sands' EBITDA number only includes 7 months of operations at Marina Bay Sands, the world's most profitable casino. If we assume a full year, it would have provided $1.25 billion in property EBITDA, and the EV/property EBITDA number falls to 12.1.
Things to think about
To make calculations more straightforward I have not adjusted Las Vegas Sands and Wynn Resorts for the portions of their Macau operations they do not own. Wynn sold 27.7% of it Macau operations and Las Vegas Sands sold 29.7% of its Macau operations and adjustments would make both look slightly more expensive.
There's also the impending opening of Sites 5 & 6, which will effectively reduce cash (to pay for construction) and increase EBITDA at Las Vegas Sands. But most importantly Las Vegas Sands has a slew of warrants still outstanding from the capital raise the company did in 2008. If we use the diluted share count to calculate market cap, that number balloons to $30.4 billion.
Foolish bottom line
With Las Vegas Sands' share price now down to under $37, I am much more comfortable with the valuation versus peers than I was a few months ago. For these three companies I see Melco Crown as the best value, Las Vegas Sands with the most upside potential and Wynn Resorts somewhere in the middle. The only operator in Macau I wouldn't touch with a 10-foot pole is MGM Resorts
- Add Las Vegas Sands to My Watchlist.
- Add Wynn Resorts to My Watchlist.
- Add Melco Crown to My Watchlist.
