So, from Part 1 of this article, we now know that Macau is set to continue bringing fortune to both Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN). Wynn has some of the region's highest-rated properties, while Sands is making a mint on mass-market gambling. As gambling laws ease in Japan, Sands may be the first to the trough with a proven history of bringing local tourism to new heights in fresh Asian markets. Still, there's more to consider when looking at these two businesses. Let's check in on U.S. operations and examine valuation to determine which casino holds the best odds.
In Vegas, Las Vegas Sands reigns as king of the Strip. As mentioned in Part 1, the company has more rooms and gambling activities than Wynn Resorts, and generates more money. The Venetian is arguably the most recognized property on the Strip and constantly proves that a volume shop works when it comes to Vegas-style gambling and resorts.
Wynn has beautiful hotels, too, and its namesake founder is easily the most respected name in gaming. With a market cap that is one-third of Las Vegas Sands', Wynn is a smaller company, but with just as large, if not larger, ambitions. Wynn is also a more efficient machine.
During a recent investor conference call, Steve Wynn pointed out that despite Sands' size, Wynn was able to achieve sales that were 80% of its competition's. It's an impressive fact, given that Sands operates three times as many rooms and has 250% more machines.
At the end of the day...
A brief look at valuation shows two similar companies enjoying similar market-darling status. Las Vegas Sands offers investors a much lower forward earnings multiple -- 17.2 times versus Wynn's more than 23 times.
EV/EBITDA tells a different story and highlights Wynn's' incredible cash flow yield. The company trades at around 13 times trailing EBITDA, while Las Vegas Sands is just over 15 times.
Neither stock is a bargain, but both offer plenty of growth in the future -- likely justifying their premium prices. So this one comes down to a matter of taste, really.
Las Vegas Sands is the industry giant. It's a well-oiled juggernaut of gaming that will without doubt benefit from the Asian gaming industry's growth. It knows how to enter a market and immediately become a fixture. The company has financing out the wazoo and will in all likelihood continue its cash-printing ways.
Wynn Resorts is a smaller but meticulous play. Its properties are among the world's finest -- from its suites to its pits. Wynn attracts a more discerning customer. While it won't benefit as quickly from Asia's mass-market gambling growth (management did address the situation last year by promoting more aggressively), the company has solid footing as a top-tier resort business. It may not make first landfall in the frontier gambling markets, but investors can be sure that it will find a way into each one.
Based on management and an unbeatable formula for cash flow, Wynn Resorts is the pick today. Steve Wynn may not always be at the helm of the company (nor will Sands' Adelson), but for now he continues to be a visionary for the industry and a tastemaker in what it means to operate a five-star resort. His company is the Palme d'Or of gaming companies. Investors who appreciate taste over volume should keep this in mind when deciding which casino is the best bet.