Casino Stocks: Improved Profit Margins, But Still Way Off Pre-Recession Levels

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 |  Includes: BYD, LVS, MGM, PENN, WYNN
by: Cool Stock Data

During the height of the recession, the average net profit margin of five of the largest casino stocks fell to -14%. As of the end of the first quarter of 2011, that number rebounded to -1%, but it is still far off of the pre-recession average net profit margin of 18% back in March 2007.

The five casino stocks studied are Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS), Penn National Gaming (NASDAQ:PENN), MGM Resorts (NYSE:MGM) and Boyd Gaming (NYSE:BYD). The chart below shows the wild swings that the net profit margins of these companies had during the last four years. After riding high in the mid-2000's, the recession took its toll and the net profit margins finally bottomed in the second half of 2009.

Net Profit Margins from 3/31/-7 - 3/31/11:

click to enlarge
Click to enlarge

Although Wynn Resorts had one of the largest declines of net profit margins among the five casino stocks studied, with a 32% drop, it also had the furthest to fall. In March of 2007 its net profit margin stood at 39%. MGM Resorts had a very thin margin of 9% in 2007. Like Wynn, its margin dropped by 32% and today it stands at -23%. This is probably largely due to the City Center debacle.

The table below shows the net profit margin for each of these companies as of 3/31/07 and 3/31/11, along with the change during that period.

Net Profit Margins
3/31/07 3/31/11 Change
WYNN 39% 7% -32%
PENN 14% -2% -16%
LVS 17% 11% -6%
MGM 9% -23% -32%
BYD 12% 0% -12%
Average 18% -1% -20%
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The decline in net profit margin for these five stocks is also revealed in the decline in the prices of the stocks since 2007. On average, these stocks lost 33% of their value between 3/31/07 and 7/1/11. This number would have been much worse without the stellar performance of WYNN. Year-to-date, these stocks are holding up decently, rising by an average of 7%, but again, WYNN is doing the heavy lifting.

Price Change
3/31/07 - 7/1/11 YTD
WYNN 53% 46%
PENN -7% 18%
LVS -50% -4%
MGM -81% -8%
BYD -81% -15%
Average -33% 7%
Click to enlarge

While the casino stocks have made a decent comeback, they still have a way to go to get back to the level of profitability that they had before the recession. It will be interesting to see the profit margins for these stocks when they report second quarter earnings in the coming weeks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.