Casino companies Boyd Gaming (NYSE: BYD), Penn National Gaming (Nasdaq: PENN), and Las Vegas Sands (NYSE: LVS) all reported quarterly earnings this week, and they weren't pretty. In fact, you'd probably be better off hitting the roulette tables than letting your money ride on gaming stocks. Let's take a brief look at their results to understand why.
Oh, Boyd
Boyd closed down more than 17% for the day on Tuesday, and is down about 45% since its 2012 peak in February.
But why has the stock taken such a beating? Probably because Boyd missed both its EBITDA and EPS estimates. On top of that, Boyd has made a point to acquire abysmal locations in spots as varied as Mulvane, Kan., Amelia, La., and Dubuque, Iowa.
Boyd's only potential advantage over its competition is its miserable net margin of 0.2%. This is a potential catalyst because if Boyd is able to increase net margins by as little as 100 basis points, profits will multiply six times over.
The hope is that the recent Southern and Midwestern acquisitions will boost the company's presence in those regions, and higher margins will follow. It's likely that Boyd's astronomical P/E -- it trades for more than 90 times earnings -- takes this into consideration already and is counting on more impressive margins moving forward.
Penn National: nothing special
Penn National Gaming reported results that were a bit more tolerable, but still nothing that wowed investors.
That said, there were a few warning signs I noticed from the conference call:
- Only half of Penn National's properties posted year-over-year EBITDA growth.
- Not an insignificant portion of time was spent debating the futures of properties in Columbus vs. Toledo -- not exactly a sign of exciting growth prospects.
- The company barely missed revenue estimates, reporting $712 million vs. an expected $722 million.
- Management announced it was "pleasantly surprised ... with the good weather and the extra day in February." Any company surprised by the fruits of a leap year could be in trouble.
Maybe Las Vegas Sands will bring some good news?
Maybe not
Las Vegas Sands -- unlike Boyd and Penn National -- pays a dividend, and it's by far the largest and most successful company considered here. The current dividend yield is around 2.7%, and its market cap stands at about $30 billion. For some perspective, Penn National's has a market cap around $3 billion, while Boyd's is less than half a billion.
However, even Las Vegas Sands is not immune from sector-wide issues. Its profits fell dramatically from the same quarter last year, failing to meet analyst expectations.
The company announced net income of just $240.6 million, nearly 35% less than second-quarter earnings in 2011 -- in that time the stock has fallen just a bit more than 20% itself. To reverse this trend, Las Vegas Sands will have to count on Macau and Singapore as continued areas of growth. For an idea of how dominant these markets have become, consider the numbers: Macau and Singapore property EBITDA averaged almost $400 million in the second quarter, compared to the paltry $64 million EBITDA of Vegas properties.
Better luck next time
Unfortunately, these three earnings reports seem to be telling investors that the gaming industry is slowing. If these results serve as a snapshot for the health of casino companies, they may want to retake the picture.
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