Wynn Resorts (WYNN +0.67%) has helped its shareholders profit significantly since the market bottom in 2009, as it rose from only $15.40 per share to nearly $198 per share at the time of this writing. Its huge share-price rise was also fueled by decent growth in Macau's gaming operations. Is Wynn Resorts a good stock to buy now compared to its peers Las Vegas Sands (LVS +0.07%) and Melco Crown Entertainment (MPEL 0.18%)?
Most of Wynn Resorts' business comes from Macau
Macau operations is the big revenue and adjusted-property earnings before interest, taxes, depreciation, and amortization contributor for Wynn Resorts. The region generated nearly $1 billion in revenue and more than $329 million in adjusted-property EBITDA in the third quarter of fiscal 2013. Adjusted-property EBITDA, pre-opening costs, property charges, and other costs are the common performance measurements in the gaming industry. In the third quarter, Wynn's adjusted-property EBITDA of the Macau business jumped by 12.6% year over year.
However, compared to Las Vegas Sands and Melco Crown, Wynn Resorts experienced the overall slowest growth in Macau. In the third quarter of fiscal 2013, Las Vegas Sands, the owner of Sands Macau and Venetian Macau, managed to increase its adjusted-property EBITDA by 60.8% to more than $784 million, driven by the strong growth in all segments. Its mass-table win, rolling volume, and slot and electronic table games enjoyed faster growth than the general Macau market. Melco Crown also enjoyed high double-digit growth in Macau. Its City of Dreams grew adjusted- property EBITDA by 46% to $298.4 million in its third-quarter earnings results.
Wynn Resorts' growth potential
While both Las Vegas Sands and Melco Crown are driving business growth by expanding their resorts in the Cotai region, Wynn Resorts is the late comer. To stay competitive with both Las Vegas Sands and Melco Crown, Wynn Resorts plans to expand its business in the Cotai region by spending $4 billion to open an integrated resort with 2,000 hotel rooms and 500 gaming tables. The company expects to open this new resort by 2016. . That could represent huge growth for Wynn Resorts, as with the new Cotai resorts the company's table games would double and the number of hotel rooms would triple.Moreover, Wynn Resorts was also interested in expanding in the U.S. market, with a proposed $1.2 billion waterfront resort in Boston and a $925 million resort in Philadelphia.
Because of the expected future growth, these three gaming giants have high market valuations. Wynn Resorts is valued at nearly 27 times its forward earnings, while the forward earnings valuations of Las Vegas Sands and Melco Crown are 21.5 and 24.8, respectively. Income investors might like Wynn Resorts and Las Vegas Sands for their dividend yields, at 2.1% and 1.8%, respectively. However, both of them pay out more than what they earn in dividends. Wynn Resorts has a 178% payout ratio, whereas Las Vegas Sands' payout ratio is also quite high, at 155%. Melco Crown does not pay any dividends.
My Foolish take
These three gaming companies will benefit a lot from fast-growing casino developments in Macau, especially in the Cotai region. Wynn Resorts, with the upcoming casino development in Cotai and in the U.S., might double its EBITDA in the next three years. However, in three more years, there will be a lot of unexpected changes. Wynn could still fit well in the opportunistic investor's portfolio, but personally, at the high forward earnings valuation and high payout ratio, I would rather wait for price contraction before initiating a long position.
