The casino gaming industry has changed dramatically over time, and both Las Vegas Sands (NYSE:LVS) and MGM Resorts (NYSE:MGM) have adapted to the times in their own ways. Both companies have acknowledged the change in the center of gravity for global gaming away from Las Vegas toward the Asian gaming capital of Macau, and both have suffered in part from Macau's woes. Yet each company takes a slightly different view in its strategy within the gaming industry, and investors rightfully want to know which one is a better buy right now. Let's look at how Las Vegas Sands and MGM Resorts compare on some key metrics to see which one might be a smarter pick for investors.
Both MGM Resorts and Las Vegas Sands saw their shares drop in response to troubled times in Macau, but recently, optimism has helped reverse most of those declines. Since March 2015, MGM Resorts is down just 5%, while Las Vegas Sands has managed to post modest gains of about 1%.
From a valuation standpoint, the two casino giants also share a lot in common. On a trailing basis, a meaningful comparison isn't possible, because MGM Resorts has posted a loss over the past 12 months. Las Vegas Sands sports an earnings multiple of 21 on a trailing basis, which reflects the earnings pressure that the company has felt because of Macau's weakness but also the relative weakness in share prices over the past couple of years.
When you look at forward earnings estimates, the two companies look relatively similar. Las Vegas Sands currently carries a forward multiple of just under 20, and that's comparable to MGM Resorts' figure of just over 20. Based solely on this simple valuation analysis, there's little to distinguish MGM and Las Vegas Sands.
On the dividend front, however, the story is a lot different. MGM Resorts doesn't pay a dividend at all, and you have to go back 15 years to find dividend payments in the past. Las Vegas Sands, on the other hand, carries a lucrative yield of 5.4%, and it has remained committed to consistent dividend growth even during the tough times the casino company has experienced lately.
MGM Resorts has labored under substantial amounts of debt, and it's still working on restructuring its obligations and slowly paying it down. In its efforts to recover from ill-timed spending on Las Vegas Strip projects immediately before the financial crisis in 2008, MGM has had to refinance between $3.4 billion and $12 billion each year. However, those amounts have come down gradually, and MGM is making progress toward getting out from under its extensive debt load.
By contrast, Las Vegas Sands has found room to boost dividends regularly. Since initiating its regular dividend in 2012, the casino giant has nearly tripled its regular quarterly payout. For dividend investors, Las Vegas Sands is the natural choice between these two companies.
Investors in both MGM and Las Vegas Sands are focused largely on the prospects for growth. Las Vegas Sands in particular has taken a huge hit from Macau, given its status as first-mover in the lucrative market. The company's fourth-quarter results included a 16% plunge in revenue that sent EBITDA down 22%, but Las Vegas Sands finally reported sequential improvement in its overall operating earnings, and it pointed to extremely strong results from the Venetian Macau as evidence that the key market could finally have turned. Las Vegas operations also helped Sands' overall results, and even though Singapore has been a problem recently, Sands still believes that it's best-placed to benefit from an Asian rebound more broadly.
MGM also showed some encouraging signs in its most recent earnings report, despite pressure from Macau. The company's loss per share for the quarter doubled from year-ago levels, stemming largely from a non-cash impairment charge related to the acquisition of MGM China. Domestically, MGM has had a lot of success both in Las Vegas and at its regional resorts scattered across the nation, posting 11% growth in adjusted property EBITDA for 2015. The expected creation of real-estate investment trust MGM Growth Properties should help the company earn some tax savings and strengthen the casino operating company's financial position, and that could put MGM in a better place to foster growth projects in the future.
Which of these two stocks is a better buy depends on your view of the casino industry generally. Las Vegas Sands has a stronger position in Macau, and so if you believe that Asia's key market will continue to dominate the industry, then Las Vegas Sands deserves more of your attention. For those who think that the U.S. gaming market could bounce back and regain some of the business it lost to Macau over the years, then MGM Resorts is a solid way to play it.