Las Vegas Sands Corp. (LVS) and Melco Crown Entertainment Limited (MPEL) are two casinos and gaming operators that are set to benefit from the increasing popularity in Macau. LVS derives about 85% of revenue from Asian regions while MPEL focuses exclusively on the Chinese casino industry.
According to Sterne Agee analyst David Bain, Macau continues to outperform, and the analyst is positive for gaming companies that operate there, including: Melco Crown Entertainment Limited, Las Vegas Sands, MGM Resorts International (MGM) and Wynn Resorts Ltd. (WYNN). Bain said,
"According to our checks, Macau table-only gross gaming revenue ("GGR") is MOP17.6b through March 17. Including slots, the GGR run-rate for March is MOP33.3b or +~32% YoY. We are raising our March YoY estimate to +20% YoY (MOP30.0b) from +14%, and note our March estimate is ~6% higher than Macau's all-time monthly record set in December of last year."
Further, the strong gaming revenue is supported by increasing traffic. As reported by Xinhua, Macau's visitor arrivals in package tours in January increased by 18.3 percent year-on-year to 757,190, where tour visitors mainly came from the Chinese mainland (562,722).
Las Vegas Sands Corp.
LVS was down 0.19% and closed at $53.49 on March 18, 2013. LVS had been trading in the range of $34.72-$62.09 in the past 52 weeks. LVS has a market cap of $44.05B with a very high beta of 3.65.
Analysts currently have a mean target price of $58.24 and a median target price of $60.00 for LVS, suggesting 8.88%-12.17% upside potential. Analysts are estimating an EPS of $0.66 and revenue of $3.24B for the current quarter ending in March, 2013. For 2013, analysts are estimating an EPS of $2.68 with revenue of $13.15B, which is 18.10% higher than 2012.
Fundamentally, there are a few positive factors for LVS:
- LVS has a strong economic moat as it owns one of only two casino licenses in Singapore and one of six licenses in Macau
- Strong revenue and cash flow growth in Macau
- Higher revenue growth (3-year average) of 34.6 (vs. the industry average of 7.9)
- Higher operating margin of 20.8% and net margin of 13.7% (vs. the industry averages of 20.7% and 9.6%)
- Stronger ROE of 20.4 (vs. the average of 18.5)
- Lower debt/equity of 1.4 (vs. the average of 2.1)
- LVS generates a strong operating cash flow of $3.06B with a levered free cash flow of $984.94M
- LVS currently offers an annual dividend yield of 1.87%. LVS's ex-dividend date is March 19, 201, where a dividend of 35 cents per share will be distributed.
Technically, the MACD (12, 26, 9) indicator is showing a bullish sign. The momentum indicator, RSI (14), is increasing and indicating a bullish lean at 59.69. LVS is currently trading above its 200-day MA of $43.61 and slightly above its 50-day MA of $52.13. The next resistance is $55.16, the R1 pivot point, followed by $59.17, the R2 pivot point, as seen from the chart below.
How to Invest
While LVS continues to benefit from increasing revenues in Macau, along with its solid fundamentals, LVS remains an attractive investment target. With 12.10% expected annual EPS growth (5 year), there is still more upside potential for this stock. However, in the near-term, it is important to see if LVS can hold above its 50-day MA to determine its short-term direction. Investors can also review the following ETFs to gain exposure to LVS:
- Market Vectors Gaming ETF (BJK), 7.93% weighting
- Large-Cap Growth Equity Strategy Fund (RWG), 3.89% weighting
Melco Crown Entertainment Ltd
MPEL was down 1.05% and closed at $20.33 on March 18, 2013. MPEL had been trading in the range of $9.13-$21.48 in the past 52 weeks. MPEL has a market cap of $11.24B with a beta of 2.06.
Analysts currently have a mean target price of $24.25 and a median target price of $24.60 for MPEL, suggesting 19.28%-21% upside potential. Analysts are estimating an EPS of $0.20 with revenue of $1.08B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $0.97 with revenue of $4.43B, which is 8.70% higher than 2012.
Fundamentally, there are a few positive factors for MPEL:
- Melco benefits from a narrow economic moat as it owns one of six licenses to operate casinos in Macau
- Higher revenue growth (3-year average) of 39.3 (vs. the industry average of 7.9)
- Higher net margin of 10.5 (vs. the average of 9.6)
- Lower debt/equity of 0.5 (vs. the average of 2.1)
- Lower P/B of 3.4 (vs. the industry average of 4.1)
Technically, the MACD (12, 26, 9) indicator is showing a bullish trend, but the MACD difference continues to decline. RSI (14) is declining but still indicating a slightly bullish lean at 54.49. MPEL is currently trading above its 200-day MA of $14.64 and 50-day MA of $19.90. The next resistance is $21.20, the R1 pivot point, followed by $23.19, the R2 pivot point, as seen from the chart below.
How to Invest
With 42.42% expected annual EPS growth for the next 5 years and a healthy balance sheet, MPEL looks solid for the long-term. In the short-term, technical indicators are weakening and investors may want to see if MPEL can hold above its 50-day MA to determine its short-term direction. A safer entry point will be around $17-$17.5 range.
Note: All prices are quoted from the closing of March 18, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions. LVS and MPEL are high beta stocks and may be not suitable for conservative investors.