Seeking Alpha
, Optionity (1 click)
Long/short equity, value, options trading, options investing
Profile| Send Message|
( followers)  

In April, 2013, the gaming revenue for Macau is trending higher by 13-15 percent year-over-year as estimated by Wells Fargo, which is higher than the bank's previous estimates of 12-14 percent. Three Casino stocks are expected to benefit from this better-than-expected gaming revenue in Macau, including Las Vegas Sands Corp. (NYSE:LVS), Melco Crown Entertainment Limited (NASDAQ:MPEL), and Wynn Resorts, Limited. (NASDAQ:WYNN).

Wells Fargo expects above-consensus 2013 Macau gaming revenue (with growth of 16 percent compared to last year). Analyst Cameron McKnight said,

Month-to-date ADR (including Slots) of 964MM MOP is up 16% yr/yr and flat from the prior week. We believe concerns over avian influenza and recent soft economic data are overdone, and remain buyers of Macau stocks Melco Crown Entertainment Limited, Wynn Resorts Ltd. and Las Vegas Sands Corp.

Las Vegas Sands Corp.

Las Vegas Sands Corp. develops integrated resorts worldwide and derives about 85% of revenue from Asian regions. Analysts currently have a mean target price of $58.88 for LVS, suggesting 10.24% upside potential based on the closing price of $53.41 on April 22, 2013. Analysts are estimating an EPS of $0.66 with revenue of $3.26B for the current quarter ending in March, 2013. For 2013, analyst are projecting an EPS of $2.71 with revenue of $13.20B, which is 18.60% higher than 2012. In the last 4 quarters, LVS had 1 positive and 3 negative earnings surprises. LVS is expected to release its Q1, 2013 earnings on April 25, 2013.

Fundamentally, LVS has a higher revenue growth (3 year average) of 34.6 as compared to the industry average of 7.9. LVS also has higher operating and net margins as compared to its peers. LVS also generates a strong ROE of 20.4 (vs. the industry average of 18.5) with a healthy debt/equity ratio of 1.4 (vs. the average of 2.1). From the valuation perspective, although LVS' current P/E of 28.7 is higher than its 5 year average of 22.4, and its Forward P/E of 16.4 is higher than S&P 500's average of 14.3, its valuation is reasonable justified with its higher revenue growth rate.

Technically, the MACD (12, 26, 9) indicator is showing a bearish trend. The momentum indicator, RSI (14), is picking up and approaching the neural line. LVS is currently trading around its 50-day MA of $53.01 and above its 200-ay MA of $45.19, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

Melco Crown Entertainment Limited

Melco Crown Entertainment Limited is engaged in the gaming and hospitality business. Melco Crown focuses exclusively on the Chinese casino industry, thus benefits from a narrow economic moat that is significantly wider than the economic moat for U.S. gaming companies. Analysts currently have a mean target price of $25.19, suggesting 9.28% upside potential based on the closing price of $23.05 on April 22, 2013. Analysts, on average, are estimating an EPS of $0.23 with revenue of $1.12B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $0.98 with revenue of $4.47B, which is 9.60% higher than 2012. In the last 4 quarters, MPEL had 2 positive and 2 negative earnings surprises. MPEL is expected to release its Q1, 2013 earnings on May 6, 2013.

Fundamentally, MPEL has a much higher revenue growth rate of 39.9 (3 year average) compared to the industry average of 7.9. MPEL also generates a higher net margin and ROA as compared to the average. MPEL has a healthy debt/equity ratio of 0.5, which is well below the industry average of 2.1. From the valuation perspective, MPEL's Forward P/E of 21.3 (vs. the S&P 500's average of 14.3) is fairly justified with its much higher revenue growth rate.

Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, but the MACD difference is converging. RSI (14) is picking up and indicating a bullish lean at 57.03. MPEL is currently trading above its 50-day MA of $21.22 and 200-day MA of $15.96, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

Wynn Resorts, Limited.

Wynn Resorts, Ltd, led by Steve Wynn, is a developer, owner and operator of destination casino resorts, operating in two segments: Wynn Las Vegas and Wynn Macau. While Wynn Resorts' focus on the VIP market has resulted in its generating the highest revenue and EBITDA per table among competitors, in the near-term, WYNN is losing market share to casinos on the Cotai Strip in Macau.

Analysts current have a mean target price of $139.48, suggesting 8.63% upside potential base the closing price of $128.40 on April 22, 2013. Analysts are estimating an EPS of $1.55 with revenue of $1.37B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $6.10 with revenue of $5.39B, which is 4.60% higher than 2012. In the past 4 quarters, WYNN had 1 positive and 3 negative earnings surprises. WYNN is expected to release its Q1, 2013 earnings on May 6, 2013.

Fundamentally, WYNN also a higher revenue growth (3 year average) of 19.2 as compared to the industry average of 7.9. Despite a slightly lower operating margin, WYNN has much higher ROE (54.9) and ROA (7.1) as compared to the industry averages of 18.5 and 4.2. WYNN's current P/E of 26.5 is much below its 5 year average of 98.7. WYNN's Forward P/E of 18.5 is well justified with its higher revenue growth.

Technically, the MACD (12, 26, 9) indicator is showing a bullish trend. RSI (14) is picking up and indicating a bullish lean at 60.56. WYNN is currently trading above its 50-day MA of $121.18 and 200-day MA of $109.35. The next resistance is $128.67, the R1 pivot point, followed by $132.19, the R2 pivot point, as seen from the chart below.

(click to enlarge)

Source: StockCharts.com

Key Stats Comparison

The key stats for these 3 casino companies will be compared, as seen from the table below.

Las Vegas Sands

Melco Crown Entertainment

Wynn Resorts

Industry Average

Cap Size

$44.03B

$12.74B

$12.97B

N/A

Closing Price (April 22, 2013)

$53.41

$23.05

$128.40

N/A

Beta

3.63

2.08

2.39

N/A

Revenue Growth (3 Year Average)

34.6

39.3

19.2

7.9

Operating Margin, %, ttm

20.8%

12.7%

20.0%

20.7%

Net Margin, %, ttm

13.7%

10.5%

9.7%

9.6%

ROE

20.4

13.9

54.9

18.5

Debt/Equity

1.4

0.5

N/A

2.1

P/E

28.7

29.8

26.5

-41.2

Forward P/E

16.4

21.3

18.5

14.3 (S&P 500's average)

Projected Dividend Yield

2.62%

N/A

3.12%

N/A

Source: Morningstar and Google Finance

How to Invest

While all 3 stocks continue to benefit from higher revenue trend in Macau, MPEL and LVS remains the better bet for growth play, whereas WYNN provides the highest dividend yield. From the valuation perspective, LVS is undervalued compared to MPEL and WYNN with a Forward P/E of 16.4. With the upcoming earnings, more volatility is expected. However, the share prices should be supported with positive traffic news from Macau. Investors need to be aware that both LVS and WYNN had 3 negative earnings surprises in the last 4 quarters.

Disclaimer: Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions. LVS, MPEL, and WYNN are all high beta stocks and may be not suitable for conservative investors.

Source: Las Vegas Sands, Melco And Wynn Continue To Ride The Rising Macau Trend