Better Buy: Wynn Resorts vs. Las Vegas Sands

Image: Las Vegas Sands.

Casino-resort giants Las Vegas Sands (LVS -0.37%) and Wynn Resorts (WYNN -1.78%) have both had to deal with the fallout from shrinking revenue in the Asian gaming capital of Macau over the past couple of years. Yet recently, signs of a potential turnaround in Macau have helped bring about a rebound for the two stocks. Investors looking to get into the industry want to know whether Wynn or Sands is the better choice right now. Let's take a look at how Las Vegas Sands and Wynn Resorts compare on some key metrics to see which deserves your attention.

Valuation
Both Wynn Resorts and Las Vegas Sands have seen their stocks fall sharply since early 2014. Wynn has taken the bigger hit, losing more than 60% of its value in the past two years. Sands hasn't escaped unharmed, but its 35% drop since early 2014 is much less extreme. However, the bounces that both stocks have posted in the past month are equally disproportionate, with Wynn climbing 35% versus a 20% gain for Sands.

You might think that the big drop in Wynn stock would have left it with a more attractive valuation, a simple look at earnings multiples shows that not to be the case. Wynn currently trades at 44 times trailing earnings, compared to a trailing earnings multiple of just 20 for Las Vegas Sands. Even when you incorporate forward earnings estimates into the equation, the two stocks have relatively similar valuations of 19 to 20 times forward earnings. Based solely on simple valuation metrics, Wynn and Sands look quite similar in terms of their current and future prospects.

Dividends
For dividend investors, looking at the two casino stocks requires some extra effort. On its face, the contest seems to produce an obvious winner. Las Vegas Sands currently has a dividend yield of 6% based on its regular quarterly payout. The comparable metric for Wynn Resorts is just 2.4%.

Over the years, though, Wynn has tended to make a sizable portion of its dividend payments in the form of special dividends. For instance, special payouts of $3 to $8 per share supplemented regular quarterly payouts between 2010 and 2013, and before 2010, the company didn't pay a regular dividend at all, relying solely on special dividends.

Nevertheless, Wynn has taken a different philosophy than Sands on dividends. In cutting its dividend in early 2015 from $1.50 per share quarterly to $0.50, CEO Steve Wynn said that it would be "foolish to issue dividends on borrowed money." He cited uncertainty in the Macau market for the decision.

By contrast, Las Vegas Sands has kept raising its dividend. In late 2015, Sands boosted its payout by 11% to $0.72 per share quarterly, and CEO Sheldon Adelson said that "we remain committed to maintaining our recurring dividend programs" as well as increasing those dividends on an ongoing basis.

Some investors might not be comfortable with dividend payouts that exceed trailing earnings. However, with both companies in similar situations for now, Las Vegas Sands has a pretty clear edge for income investors.

Growth
Fundamentally, both Las Vegas Sands and Wynn Resorts have had big struggles recently. In Wynn Resorts' most recent report, the casino company reported a 27% drop in revenue from its Macau operations, and the company was left to console itself with the fact that it at least didn't lose any market share in the region. Wynn's exposure to the VIP market in Macau has left it in a worse position than many of its competitors, and it has had to work to catch up on developing greater mass-market appeal. Looking forward, though, the anticipated opening of Wynn Palace later this year could push Wynn's Macau profits higher. Solid performance in Las Vegas and prospects for new long-term business from its Wynn Everett project near Boston could make the U.S. a much more relevant part of Wynn's success going forward.

For Las Vegas Sands, though, a turnaround looks like it might be closer. Overall, Sands revenue dropped 16% in its most recent quarter, sending operating income down 22%. The company celebrated sequential improvement from the third quarter of 2015, however, and its Venetian Macau property limited its operating income declines to just 7.5%. Other Sands properties in Macau didn't hold up as well, but the casino giant's mass-market strategy has paid off in ways that Wynn hasn't been able to replicate. Strength in Las Vegas offset weakness from Singapore, but the real question for Sands is how new casinos from Wynn and others in Macau will affect its dominant position there.

Overall, Las Vegas Sands seems like the more solid choice between the two casino stocks for investors looking to put money into the sector right now. Yet for those willing to be more speculative, Wynn Resorts shares could have more upside, especially if rolling the dice in Macau ends up transforming Wynn into an even bigger player in the key Asian gaming market.